Performance Budgeting: Efforts to Restructure Budgets to Better
Align Resources with Performance (01-FEB-05, GAO-05-117SP).
Efforts to better align and integrate budget and performance
information raises many issues, including the question of budget
structure--should appropriations accounts or congressional budget
justifications or both be restructured to tighten the link
between resources and performance? If so, how and to what extent?
The administration elevated attention to this issue by including
budget restructuring as part of the President's Management Agenda
in 2001. To provide an overview of the various budget
restructuring efforts underway in the federal government, GAO:
(1) summarized steps taken by the Office of Management and Budget
(OMB) and nine selected agencies to better align their budgets
with performance and to better capture the cost of performance in
the budget; (2) discussed the potential implications of these
efforts for congressional oversight and executive branch
managerial flexibility and accountability; (3) described the
experiences and implementation challenges associated with these
efforts; and (4) identified lessons learned that can provide
insights useful in considering current and future budget
restructuring efforts.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-05-117SP
ACCNO: A19581
TITLE: Performance Budgeting: Efforts to Restructure Budgets to
Better Align Resources with Performance
DATE: 02/01/2005
SUBJECT: Accountability
Appropriation accounts
Budget administration
Budget controllability
Budget obligations
Budget outlays
Congressional budgets
Current budget level
Executive agencies
Future budget projections
Information resources management
Internal controls
Lessons learned
Performance measures
Performance-based budgeting
Budget and Performance Integration
Initiative
OMB Program Assessment Rating Tool
Planning, Program-Budgeting System
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GAO-05-117SP
* Staff Study
* February 2005
* PERFORMANCE BUDGETING
* Efforts to Restructure Budgets to Better Align Resources with
Performance
* Contents
* Executive Summary
* Purpose
* Results in Brief
* Background
* GAO Analysis
* Variety of Efforts Undertaken to Restructure Budgets to
Better Align Budget Resources with Performance
* Budget Restructuring Has Potential to Help Reframe Budget Choices
* Budget Restructuring Viewed by Some as Supporting Results-
Oriented Management and Oversight
* Some Noted Limitations and Concerns
* Budget Restructuring Efforts Face Challenges
* Lessons Learned
* Agency Comments
* Section 1: Introduction
* 1.1: Recent Budget Restructuring Efforts Are Part of Broader
Efforts toward a More Results-Oriented Federal Government
* 1.1a: Alignment of Budget and Performance Structures Is a
Long-Standing and Complex Issue
* 1.2: Lessons Learned in Performance Budgeting Initiatives Provide
Insights for Considering Current Restructuring Efforts
* 1.3: Challenges Confront Efforts to Better Align Budget and
Performance Structures
* 1.3a: Appropriations Account Structure
* 1.3b: Concept of "Cost"
* 1.3c: The Concept of "Performance Budgeting"
* 1.4: Clarification of Report Focus and Terminology Used
* Section 2: Variety of Efforts Undertaken to Restructure Budgets to
Better Align Budget Resources with Programs and Performance
* 2.1: OMB Recently Placed Greater Emphasis on Budget Restructuring
* 2.1a: OMB and Some Agencies Made Concurrent Efforts to
Restructure Budgets
* 2.1b: OMB Provides Budget Restructuring Guidance and
Requires a "Performance Budget"
* 2.2: Agencies Took Differing Approaches to Restructure Budgets to
Better Align Resources with Programs and Performance
* 2.2a: Agencies Differed on Whether They Changed Their
Appropriations Account Structure, Congressional Budget
Justification, or Both
* Changes to Appropriations Account Structure
* Changes to Program Activity Listing
* Changes to Congressional Budget Justifications
* 2.2b: Agencies Showed or Requested "Full Cost" of Different
Levels of Performance
* 2.2c: Agencies Allocated Different Types of Resources to
Performance
* 2.2d: Some Agencies Sought Corresponding Changes to Transfer
or Reprogramming Guidelines or Both
* Section 3: Restructuring Budgets May Help Reframe Budget Choices and
Raises Tradeoffs Among Different Decision Makers' Needs
* 3.1: Restructuring Appropriations Accounts and Congressional
Budget Justifications Has the Potential to Help Reframe Budget
Choices
* 3.1a: Recent Budget Restructuring Efforts Have Sought to
Help Reframe Budget Choices
* 3.1b: When Reframing Budget Choices, Some Information May Be
Less Transparent or No Longer Included
* 3.2: Approach Used and Corresponding Changes Affect the Extent to
Which Budget Restructuring May Influence Management and Oversight
* 3.2a: Appropriations Account Structure Changes Generally
Have More Far- Reaching Implications for Management and
Oversight than Changes to Program Activities or
Congressional Budget Justifications Alone
* 3.2b: Other Congressional Controls Influence Management and
Oversight of Budget Resources
* 3.3: Some Viewed Budget Restructuring as Supporting Improved
Management and Oversight, but Concerns and Limitations also
Raised
* 3.3a: Budget Restructuring Viewed by Some as Supporting
Results-Oriented Management and Oversight
* Increasing Attention to Strategic Planning,
Performance, and Results
* Providing More Complete Information on the Budget
Resources Associated with Performance
* Enhancing Incentives and Flexibility to Make Resource
Trade-offs
* 3.3b: Some Noted Limitations and Concerns
* Some Expressed Concerns that Budget Restructuring Has
the Potential to Create New Resource Management
Challenges
* Some Appropriations Subcommittees Noted General Support
for Budget and Performance Integration Efforts but
Raised Concerns about Agency Budget Restructuring
Efforts
* Regardless of General Support for Budget and
Performance Integration Efforts, Appropriations
Subcommittees Continue to State a Preference for and
Rely on Previously Established Structures
* Organizational Frameworks Used to Restructure Budgets
Did Not Meet Appropriators' Needs
* Reduced Visibility of Items of Particular Interest to
Appropriations Subcommittees
* Overly Cumbersome and Difficult-to-Use Congressional
Budget Justifications
* Agencies Address Congressional Concerns
* Extent to Which Appropriations Account
Restructuring Considered Necessary to Advance
Results-Oriented Management Varied
* New Budget Structures Do Not Address Some
Shortcomings in Cost and Performance Information
Identified as Useful for Results- Oriented
Management
* Section 4: Budget Restructuring Efforts Face Challenges
* 4.1: Lack of Consensus between Congressional Appropriators and
Other Decision Makers Creates Challenges for Budget Restructuring
Efforts
* 4.2: Budget Restructuring Requires Sustained Commitment and
Leadership
* 4.3: Concerns Raised about Ability of Agencies' Systems to
Accurately Link Budget Resources to Performance and to Track Cost
in the New Budget Structures
* 4.4: Budget Restructuring May Be a Long-Term, Iterative Process
Requiring Flexibility to Explore Different Approaches
* Section 5: Lessons Learned and General Observations
* Objectives, Scope, and Methodology
* Methodology for Selection of Agencies
* Methodology for Agency and Congressional Interviews
* Methodology for Panel Discussions
* Department of Labor
* Background
* Objectives and Implementation Time Line
* Labor's Efforts Have Progressed Over Several Years and Have
Involved Staff Integration
* Summary of Labor's Budget Restructuring Approach
* Congressional Budget Justification Changed to Better Link
Budget Resources to Performance, but No Department-wide
Changes Made to Appropriations Account Structure
* "Total Budgetary Resources" Is Uniformly Defined at Labor
but Bureaus Have Discretion Determining How to Allocate
Costs
* Agency Views on Implications of Budget Restructuring for
Management and Oversight
* Labor Officials Viewed Congressional Budget Justification
Changes as Providing More Complete Information on "Total
Budgetary Resources" Associated with the Department's
Programs and Goals
* Labor Officials Credited Congressional Budget Justification
Changes with Prompting Increased Attention to Overhead Costs
* Congressional Budget Justifications Changes Credited with
Helping Increase Focus on Performance
* Some Labor Officials Noted Limitations of the Congressional
Budget Justification Changes
* Future Direction
* Department of Veterans Affairs
* Background
* Objectives and Implementation Time Line
* Summary of VA's Budget Restructuring Approach
* VA Proposed Appropriations Account Structure Changes for
Fiscal Years 2004 and 2005
* Changes to Congressional Budget Justification Followed
Organizing Framework Used for Proposed Account Structure
* As Focus on Programs Increased, Some Previously Reported
Information Became Less Transparent
* Requests for Transfer Authority Accompany Proposed Account
Structure Changes
* VA Allocates Budget Resources Other Than Departmental
Administration to Its Nine Major Programs Using Different
Methods to Allocate Different Types of Resources
* Agency Views on Benefits and Limitations of Budget Restructuring
for Management and Oversight
* Changes Alter the Framework for Budget Choices
* Changes Provide a More Complete Picture of Total Program
Resources and Help Highlight Trade-offs
* Ability to Make Resource Trade-offs Under Proposed Budget
Structure May Be Limited
* Appropriations Account Structure Changes May Create New
Resource Management Challenges
* Budget Restructuring Does Not Provide Some Information Cited
as Useful for Improving Management and Oversight
* Future Direction
* Environmental Protection Agency
* Background
* Objectives and Implementation Time Line
* Summary of EPA's Budget Restructuring Approach
* Some Changes Made to EPA's Appropriations Account Structure
in the Mid-1990s
* Strategic Goals and Objectives Used as Organizing Framework
for Appropriations Account Structure and Budget
Justification Changes
* EPA Reprogramming Guidance Change Potentially Provided More
Flexibility
* EPA Showed Budget Resources by Strategic Goals and
Objectives
* Budget Justification Was Organized Around Strategic Goals
but Additional Information Was Included to Assist Decision
Makers
* Agency Views on Implications of Budget Restructuring for
Management and Oversight
* Future Direction
* National Aeronautics and Space Administration
* Background
* Objectives and Implementation Time Line
* Summary of NASA's Budget Restructuring Approach
* NASA's Appropriations Account Structure Changes Began in
Fiscal Year 2002
* Changes to the Budget Justification Followed Account
Structure Organizing Framework
* Some Previously Reported Information Less Transparent or No
Longer Included
* Changes to Transfer and Reprogramming Authority Accompanied
Budget Structure Changes
* NASA Requested Budget Authority for the "Full Cost" of
Programs
* Allocation Methods Vary Among Different Types of Resources
* Agency Views on Implications of Budget Restructuring for
Management and Oversight
* Budget Restructuring Credited with Increasing Information
and Incentives to Recognize and Make Resource Trade-offs;
However, Trade-offs Would Be Limited
* Budget Structure Changes May Create New Resource Management
Challenges
* Allocation of Service Pool Costs to Programs Credited with
Providing Better Information and Incentives to Identify and
Address Underutilized Assets
* Budget Restructuring Not Intended to and Will Not Address
Some Key Performance Issues
* Future Direction
* GAO Contact and Staff Acknowledgments
* GAO Contact
* Acknowledgments
* http://www.gao.gov
United States Government Accountability Office
GAO
February 2005
PERFORMANCE BUDGETING
Efforts to Restructure Budgets to Better Align Resources with Performance
a
GAO-05-117SP
PERFORMANCE BUDGETING
Efforts to Restructure Budgets to Better Align Resources with Performance
What GAO Found
Budget restructuring-changes to the congressional budget justifications
and in some cases appropriations accounts to better align budget resources
with programs and performance-has the potential to help reframe budget
choices and is one tool among many that can advance results-oriented
management. The administration has pursued budget restructuring, requiring
agencies to submit a "performance budget" beginning with fiscal year 2005.
Agencies took a variety of approaches, and these different approaches have
different implications for agency management and congressional oversight.
The budget structure reflects fundamental choices about how resource
allocation choices are framed and the types of controls and incentives
considered most important. As such, budget restructuring involves
significant tradeoffs between the type of information provided and
accountability frameworks used and has implications for the balance
between managerial flexibility and congressional control. Accordingly, our
work revealed differing views on the potential benefits and shortcomings
of budget restructuring. OMB and agency officials credited budget
restructuring with supporting more results-oriented management by
increasing attention to strategic planning, performance, and results,
providing more complete information on the budget resources associated
with performance, and in some cases, enhancing agencies' flexibility and
incentives to make tradeoffs necessary to increase efficiency and
effectiveness.
However, budget changes did not meet the needs of some executive branch
managers and congressional appropriations subcommittees. Officials from
two case study agencies said that restructuring may complicate resource
management. For example, by allocating administrative expenses across
programs, the restructuring has the potential to reduce their ability to
shift resources among programs to address unanticipated needs. Also,
congressional appropriations subcommittee staff expressed general support
for budget and performance integration but objected to changes that
substituted rather than supplemented information traditionally used for
appropriations and oversight, such as object class and workload
information. In addition, questions have been raised about the ability of
agencies' performance and financial management systems to support the new
budget structures.
Going forward, infusing a performance perspective into budget decisions
may only be achieved when the underlying information becomes more
credible, accepted, and used by all major decision makers. Thus, Congress
must be considered a partner. In due course, once the goals and underlying
data become more compelling and used by Congress, budget restructuring may
become a more compelling tool to advance budget and performance
integration.
United States Government Accountability Office
Contents
Executive Summary
1
Purpose 1
Results in Brief 5
Background 9
GAO Analysis 10
Budget Restructuring Has Potential to Help Reframe Budget Choices 12
Budget Restructuring Viewed by Some as Supporting Results-Oriented
Management and Oversight 13
Some Noted Limitations and Concerns 14
Lessons Learned 17
Agency Comments 19
20
Section 1: Introduction
1.1: Recent Budget Restructuring Efforts Are Part of Broader Efforts
toward a More Results-Oriented Federal Government 20
1.2: Lessons Learned in Performance Budgeting Initiatives Provide Insights
for Considering Current Restructuring Efforts 29
1.3: Challenges Confront Efforts to Better Align Budget and Performance
Structures 31
1.4: Clarification of Report Focus and Terminology Used 35
:Variety of Efforts Undertaken to Restructure Budgets to Better Align
Budget Resources with Programs and Performance
37
2.1: OMB Recently Placed Greater Emphasis on Budget Restructuring 37
2.2: Agencies Took Differing Approaches to Restructure Budgets to Better
Align Resources with Programs and Performance 44
Section 3: Restructuring Budgets May Help Reframe Budget Choices and
Raises Tradeoffs Among Different Decision Makers' Needs
57
3.1: Restructuring Appropriations Accounts and Congressional
Budget Justifications Has the Potential to Help Reframe Budget
Choices 58
3.2: Approach Used and Corresponding Changes Affect the Extent to
Which Budget Restructuring May Influence Management and
Oversight 62
3.3: Some Viewed Budget Restructuring as Supporting Improved
Management and Oversight, but Concerns and Limitations also
Raised 66
91
Section 4: Budget
[IMG] 4.1: Lack of Consensus between Congressional Appropriators and Other
Decision Makers Creates Challenges for Budget Face Challenges
Restructuring Efforts 92
4.2: Budget Restructuring Requires Sustained Commitment and Leadership 95
4.3: Concerns Raised about Ability of Agencies' Systems to Accurately Link
Budget Resources to Performance and to Track Cost in the New Budget
Structures 96
4.4: Budget Restructuring May Be a Long-Term, Iterative Process Requiring
Flexibility to Explore Different Approaches 99
Section 5: Lessons Learned and General Observations
Appendixes
Appendix I: Objectives, Scope, and Methodology 104
Methodology for Selection of Agencies 106
Methodology for Agency and Congressional 111
Interviews
Methodology for Panel Discussions 112
Appendix II: Department of Labor 114
Background 114
Objectives and Implementation Time Line 116
Summary of Labor's Budget Restructuring 118
Approach
Appendix III:
Appendix IV:
Appendix V:
Appendix VI:
Agency Views on Implications of Budget Restructuring for
Management and Oversight 125 Future Direction 128
Department of Veterans Affairs 129 Background 129 Objectives and
Implementation Time Line 130 Summary of VA's Budget Restructuring Approach
132 Agency Views on Benefits and Limitations of Budget Restructuring
for Management and Oversight 141 Future Direction 145
Environmental Protection Agency 146 Background 146 Objectives and
Implementation Time Line 150 Summary of EPA's Budget Restructuring
Approach 152 Agency Views on Implications of Budget Restructuring for
Management and Oversight 162 Future Direction 164
National Aeronautics and Space Administration 165 Background 165
Objectives and Implementation Time Line 167 Summary of NASA's Budget
Restructuring Approach 170 Agency Views on Implications of Budget
Restructuring for
Management and Oversight 177 Future Direction 181
GAO Contact and Staff Acknowledgments 182 GAO Contact 182 Acknowledgments
182
Table 1: Where Agencies Made or Proposed Changes to Better Align
Tables
Budget Resources with Programs and Performance 10 Table 2: Statutory
Framework for Improving Accountability of
Federal Government, 1990 through 1996 23 Table 3: Overview of Some
Previous Initiatives 28 Table 4: Where Agencies Made or Proposed Changes
to Better Align
Budget Resources with Programs and Performance 45 Table 5: Program
Activity Listing for EPA's Environmental
Programs and Management Appropriations Account
(Fiscal Years 1998, 1999, and 2005 Budgets) 49 Figure 5: Supplemental
Table from DOT's Congressional Budget
Table 6: Comparison of EPA's Appropriations Account Structure
and Organizing Framework for Its Fiscal Year 2005
Congressional Budget Justification 51
Table 7: Level of Program or Performance to Which Agencies
Showed or Requested "Full Cost" in Congressional Budget
Justifications 52
Table 8: Resource Table Presented in Labor's Fiscal Year 2005
Congressional Budget Justification for Job Corps 53
Table 9: Agencies Considered for Review 109
Table 10: Agencies Selected for Case Studies 110
Table 11: Resource Table Presented in the Fiscal Year 2005
Congressional Budget Justification for Job Corps 121
Table 12: Performance Goal Cost Allocation Presented in the Fiscal
Year 2005 Congressional Budget Justification for Job
Corps 122
Table 13: Labor's Main Cost Categories: Definitions and
Examples 124
Table 14: Example of Relationship between VA's Strategic and
Programmatic Frameworks 130
Table 15: Program Activity Changes Since Fiscal Year 1998 Budget:
Environmental Programs and Management Appropriations
Account Example 154
Table 16: Resource Table Presented in EPA's Fiscal Year 2005
Congressional Budget Justification: Resources by Goal/
Appropriation 156
Table 17: Resource Table Presented in EPA's Fiscal Year 2005
Congressional Budget Justification: Resources by Goal/
Objective 157
Table 18: Cost Definitions and Examples 176
Figures Figure Relationship among the PMA, the BPI, and Budget
1: Restructuring 26
Figure Time Line of OMB and Agency Efforts to Align
2:
Appropriations Accounts and Congressional Budget
Justifications with Performance 38
Figure Appropriations Accounts Funding the Medical Care
3:
Program under VA's Fiscal Year 2003 Enacted and Fiscal
Year 2004 Proposed Appropriations Account Structure 46
Figure Appropriations Accounts Funding General Operating
4:
Expenses under VA's Fiscal Year 2003 Enacted and Fiscal
Year 2004 Proposed Appropriations Account Structure 47
Justification 54 Figure 6: Example of Labor's Strategic Framework 115
Figure 7: Labor's Implementation Time Line 118 Figure 8: VA's
Implementation Time Line 132 Figure 9: Comparison of Appropriations
Accounts Funding Each
Major Program under Fiscal Year 2003 Enacted
Appropriations Account Structure and Fiscal Year 2004
Proposed Appropriations Account Structure 134 Figure 10: Program Activity
Listing: Medical Care Appropriations
Account 136 Figure 11: Comparison of Appropriations Accounts Funding Each
Major Program under Fiscal Year 2004 Enacted
Appropriations Account Structure and Fiscal Year 2005
Proposed Appropriations Account Structure 138 Figure 12: Example of EPA's
Budget Structure Organized by
Strategic Goal and Objective 148 Figure 13: The Relationship between
Strategic Goals and
Objectives, Program Projects, and Appropriations
Accounts 150 Figure 14: EPA's Implementation Time Line 152 Figure 15:
Excerpt from EPA's Fiscal Year 2005 Congressional
Budget Justification 159 Figure 16: Example of Relationship between NASA's
Strategic and
Organizational Frameworks 167 Figure 17: NASA's Implementation Time Line
169 Figure 18: NASA's Appropriations Account Structure Incrementally
Changed between Fiscal Years 2001 and 2005 to Reflect
Organizational Framework 171
Abbreviations
BLS Bureau of Labor Statistics
BPI Budget and Performance Integration
CFO Chief Financial Officers
CoF Construction of Facilities
Commerce Department of Commerce
CPPR Center for Program Planning and Results
DOJ Department of Justice
DOT Department of Transportation
EBSA Employee Benefits Security Administration
EEOICF Energy Employees Occupational Illness Compensation Fund
EPA Environmental Protection Agency
ETA Employment and Training Administration
ESA Employment Standards Administration
FAA Federal Aviation Administration
FASAB Federal Accounting Standards Advisory Board
FFMIA Federal Financial Management Improvement Act
FMCSA Federal Motor Carrier Safety Administration
FTA Federal Transit Administration
FTE Full-time equivalent
G&A General and Administrative
GMRA Government Management Reform Act
GOE General Operating Expenses
GPRA Government Performance and Results Act
HUD Department of Housing and Urban Development
IFMP Integrated Financial Management Program
IFMS Integrated Financial Management System
IG Inspector General
IT Information Technology
Labor Department of Labor
MAMOE Medical Administration and Miscellaneous Operating Expenses
MBO Management by Objectives
MRB Management Review Board
MSHA Mine Safety and Health Administration
NASA National Aeronautics and Space Administration
NCA National Cemetery Administration
NPA National Program Administration
NPR National Performance Review
OMB Office of Management and Budget
OPPTS Office of Prevention, Pesticides, and Toxic Substances
ORD Office of Research and Development
OSHA Occupational Safety and Health Administration
P&F Program and Financing
PART Program Assessment Rating Tool
PBAA Planning, Budgeting, Analysis, and Accountability
PBGC Pension Benefit Guaranty Corporation
PMA President's Management Agenda
PPBS Planning, Program-Budgeting System
S&E Salaries and Expense
SBA Small Business Administration
VA Department of Veterans Affairs
VBA Veterans Benefit Administration
VHA Veterans Health Administration
VR&E Vocational Rehabilitation and Employment
ZBB Zero-based Budgeting
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Executive Summary
Purpose
Over the last decade, Congress, the Office of Management and Budget (OMB),
and other executive agencies have worked to implement a statutory and
management reform framework to improve the performance and accountability
of the federal government. Key components of this framework include the
Government Performance and Results Act (GPRA), the Chief Financial
Officers (CFO) Act, and the Government Management Reform Act (GMRA). These
reforms are designed to inform congressional oversight and executive
decision making by providing objective information on the relative
effectiveness and efficiency of federal programs and spending. As a result
of this framework, there has been substantial progress in the last few
years in establishing the basic infrastructure needed to create
high-performing federal organizations.
However, the federal government is in a period of profound transition and
faces an array of challenges-including diffuse security threats and
homeland security needs and a growing long-term fiscal imbalance-and
opportunities to enhance performance, ensure accountability, and position
the nation for the future. GAO has sought to assist Congress and the
executive branch in considering the actions needed to support the
transition to a more high-performing, results-oriented, and accountable
federal government.1 This report focuses on one strategy-budget
restructuring-suggested to increase the focus on performance and results
during budget deliberations.
The current administration has taken several steps to strengthen the
integration of budget, cost, and performance information for which GPRA,
the CFO Act, and GMRA laid the groundwork. This administration has made
the integration of budget and performance information one of five
governmentwide management priorities under its President's Management
Agenda (PMA).2 This initiative includes efforts such as the Program
Assessment Rating Tool (PART), improving outcome measures, and
1 GAO has done constructive reviews of GPRA and various executive branch
efforts to improve performance and accountability. See, for example,
Results Oriented Government: GPRA Has Established a Solid Foundation for
Achieving Greater Results, GAO-04-38 (Washington, D.C.: Mar. 10, 2004) and
Performance Budgeting: Observations on the Use of OMB's Program Assessment
Rating Tool for the Fiscal Year 2004 Budget, GAO-04-174 (Washington, D.C.:
Jan. 30, 2004).
2 In addition to budget and performance integration, the other four
priorities under the PMA are strategic management of human capital,
expanded electronic government, improved financial performance, and
competitive sourcing.
improving monitoring of program performance. Another effort is budget
restructuring-changes to congressional budget justifications and in some
cases appropriations accounts-to better align budget resources with
performance.
Improving connections between budget and performance information is
neither a new nor a simple undertaking. Since about 1950 the federal
government has attempted several governmentwide initiatives designed to
better inform spending decisions based on expected performance.3 Efforts
such as the Planning, Program-Budgeting System (PPBS) and Zero-based
Budgeting (ZBB) were limited in part because their performance structures
were not clearly linked to the budget. GPRA was established to provide
improved connections between planning and budgeting by requiring
performance plans to cover all program activities4 listed in the budget.
The expectation was that agency goals and measures would be taken more
seriously if they were perceived to be useful and used in the resource
allocation process. Thus, GPRA established a basic foundation for linking
resource allocation decisions and results. Together with the CFO Act GPRA
seeks to improve decision making by providing information on the relative
effectiveness and efficiency of federal programs and spending and to help
federal managers improve service delivery by providing them with
information about program results, costs, and service quality.
Efforts to integrate performance information formally into budget
decisions raise many issues, including the question of budget structure-
should appropriations accounts or congressional budget justifications or
both be restructured to tighten the link between resources and
performance? If so, how and to what extent? The federal budget is
organized into about 1,100 appropriations accounts, and most accounts have
subsidiary program activities that allocate budget authority to more
specific levels of inputs, outputs, or outcomes funded by the account. Our
previous review of appropriations accounts revealed a complex and varied
structure characterized by a mix of account orientations-object,
3 For a more detailed discussion of these initiatives, see GAO,
Performance Budgeting: Past Initiatives Offer Insights for GPRA
Implementation, GAO/AIMD-97-46 (Washington, D.C.: Mar. 27, 1997).
The term "program activity" refers to the listings shown in the Program
and Financing (P&F) schedule of the Appendix portion of the Budget of the
United States Government. Program activity structures are intended to
provide a meaningful representation of the operations financed by a
specific budget account usually by projects, activities, or organization.
organization, process, and program-that reflect a specific focus or
interest of Congress.5 While the current account structure may help
satisfy congressional control and oversight objectives, it does not always
align well with performance goals, nor does it always readily capture the
"full costs" of programs.6 For example, certain performance goals cut
across multiple program activities and appropriations accounts. Also, the
costs of a single program can sometimes be split among multiple accounts,
such as accounts for salaries and expenses and accounts for other
expenditure items such as capital or construction. Although clearer and
closer associations between performance information and budget requests
could more explicitly inform and help focus budget discussions on
performance, this is easier said than done. Planning and budget structures
serve different purposes, and any effort to achieve meaningful connections
between them highlights tensions between their differing objectives.
In 2001, OMB elevated attention to this issue by including budget and
performance integration (BPI) as a key initiative within the PMA. As part
of this initiative, OMB has pursued budget restructuring to better align
budget resources with programs and performance. OMB provided agencies
guidance on ways to restructure their appropriations accounts and
congressional budget justifications and, beginning with the fiscal year
2005 budget, OMB required agencies to submit a "performance budget" that
would integrate the annual performance plan and the congressional budget
justification into one document.7 The "performance budget" should reframe
budget requests around what agencies intend to accomplish with the
resources requested and enhance public and congressional understanding of
government performance.
"Performance budgeting" may be thought of as an umbrella of various
initiatives, including OMB's PART, to better infuse performance
5 GAO, Budget Account Structure: A Descriptive Overview, GAO-AIMD-95-179
(Washington, D.C.: Sept. 18, 1995).
6 OMB and other agencies use terms such as "full cost" and "total
budgetary resources" that in most cases refer to the alignment of
requested budget authority with programs and performance. However, some
may interpret these terms differently. Thus, when we use terms "full cost"
and "total budgetary resources" we place them in quotations.
7 In this report "performance budget" refers to congressional budget
justifications that are structured around agency strategic and performance
goals and not to any process or approach in which resource allocation
decisions are being more generally linked to performance. We place
"performance budget" in quotations because different users may interpret
the term differently.
information into the budget process. The focus of this report is budget
restructuring. Our objectives in this study were to (1) summarize the
steps taken by OMB and selected agencies to better align their budgets
with performance and to better capture the cost of performance in the
budget,
(2) discuss the potential implications of these efforts for congressional
oversight of budget resources and for executive branch managerial
flexibility and accountability over budget resources, (3) describe the
experiences and implementation challenges associated with these efforts,
and (4) identify lessons learned that might be useful in considering
future efforts for linking resources to results in the budget.
Observations and lessons learned in this study together with lessons
learned from previous "performance budgeting" initiatives provide insights
useful in consideration of current and future budget restructuring efforts
and other steps to improve the use of cost and performance information in
the budget process.
To provide an overview of the various budget restructuring efforts
underway in the federal government, we reviewed nine8 agencies' account
structures and congressional budget justifications. These nine agencies
were judgmentally selected based on a combination of their scores for
Budget and Performance Integration in the Executive Branch Management
Scorecard in the President's fiscal year 2004 budget,9 OMB's published
statements highlighting agencies' progress in this area, and the types and
extent of budget structure changes made. The nine agencies are:
1. Department of Commerce (Commerce),
2. Department of Housing and Urban Development (HUD),
3. Department of Justice (DOJ),
4. Department of Labor (Labor),
5. Department of Transportation (DOT),
6. Department of Veterans Affairs (VA),
8 Nine agencies were selected out of 26 federal departments and agencies
receiving scores in the Executive Branch Management Scorecard in the
President's fiscal year 2004 budget.
9 The Executive Branch Management Scorecard is a traffic-light grading
system to report how well federal agencies are implementing the PMA's five
governmentwide initiatives.
Page 4 GAO-05-117SP Performance Budgeting
1. Environmental Protection Agency (EPA),
2. National Aeronautics and Space Administration (NASA), and
3. Small Business Administration (SBA).
To gain a deeper understanding of the implications of agencies' efforts
for managerial flexibility and accountability and implementation
experiences and challenges, we selected four of the nine agencies-Labor,
VA, EPA, and NASA-for more in-depth case study review. To help select case
study agencies from the nine in our review, we divided the agencies into
three general groupings based on the type of changes made: (1) those with
changes to the appropriations account structure (VA, NASA, DOJ, DOT);
(2) those with changes within the account structure at the program
activity level (EPA, SBA); and (3) those with changes only to the
congressional budget justification (Labor, Commerce, HUD). From each
category, we judgmentally selected at least one agency10 for case study
based on how well they had been implementing the BPI initiative and then
on the extent of their changes. Thus, agencies that received higher scores
for BPI on the Executive Branch Management Scorecard and made or proposed
more apparent budget structure changes were more likely to be included in
our study.11 For a more detailed discussion of how we selected our
agencies and addressed the study's objectives, see appendix I.
We conducted our work from May 2003 through December 2004 in Washington,
D.C. in accordance with generally accepted government auditing standards.
Budget restructuring is one effort among a broader initiative to improve
Results in Brief
government performance and outcomes. Because the budget is the basis for
resource allocation decisions, strengthening the link between resources
and performance in congressional budget justifications is viewed as an
10 We selected two agencies-VA and NASA-within the group that made or
proposed changes to their appropriations account structure.
11 When we initiated our study and chose agencies for review in May 2003,
no agency had achieved a green light for "status"-or met all of the
administration's standards for success-in implementing the BPI initiative.
Since then, eight agencies have achieved green lights, including four in
our review-NASA, Labor, DOT, and SBA. All agencies in our review have a
green light for progress.
important step to increase the focus on performance in budget
deliberations. Moreover, changing the appropriations account structure is
intended to provide managers with the incentives to manage resources more
efficiently. According to OMB staff, aligning authority and
accountability-or appropriating budget authority12 by programs and
outcomes-provides both the information and flexibility to allocate
resources and execute the budget with a focus on effectiveness.
Given the multiplicity of budgetary actors in our system, any budget
restructuring effort represents more than structural or technical changes.
It reflects important trade-offs among different and valid perspectives
and needs of these different decision makers. The structure of
appropriations accounts and congressional budget justifications reflects
fundamental choices about how resource allocation choices are framed and
the types of controls and incentives considered most important. As such,
changes to the account structure have the potential to change the nature
of management and oversight and ultimately the relationship among the
primary budget decision makers-Congress, OMB, and agencies. Accordingly,
our work revealed differing views on the potential benefits and
shortcomings of restructuring budgets to better align budget resources
with performance.
The nine agencies in our review took a variety of approaches to
restructure their appropriations accounts and congressional budget
justifications over the past several years. These approaches differed in
terms of the:
* specific budget structures affected (e.g., appropriations account
structure, program activities within the appropriations account
structure, or congressional budget justification);
* o orientation or organizing framework used to restructure the
budget (e.g., bureaus, strategic goals, programs, etc.);
o level of performance for which budget resources were shown or budget
authority was requested (e.g., strategic goals, performance goals,
programs, etc.); and
Budget authority is authority provided by law to enter into financial
obligations that will result in immediate or future outlays involving
federal government funds.
Page 6 GAO-05-117SP Performance Budgeting
o types of resources (e.g., central administration, Inspector General
(IG) offices, etc.) distributed within the performance-based budget
structure to reflect "full cost."
OMB staff and agency officials credited budget restructuring with
supporting results-oriented management by increasing attention to
strategic planning, performance, and results and providing more complete
information on the budget resources associated with performance. Beyond
providing better information, OMB staff and officials in six agencies said
budget restructuring enhanced agencies' flexibility and incentives to make
trade-offs necessary to increase efficiency and effectiveness. NASA
officials in particular said that their restructured budget, which
allocated all direct and indirect resources to programs, gives managers
greater information and incentives to use these resources more
efficiently.
However, budget changes did not meet the needs of some executive branch
managers and congressional appropriations committees. For example,
officials from two case study agencies said budget restructuring had the
potential to complicate resource management. These case study agencies
proposed allocating administrative expenses to program appropriations
accounts. While this change would better capture the program's "full
cost," paying each program's administrative expenses from separate
appropriations accounts could make it more difficult for agencies to shift
administrative resources across programs to address emerging needs because
transferring resources between appropriations accounts requires statutory
authority.
Congressional appropriations subcommittee staff for the most part
continued to state a preference for and rely on previously established
budget structures. Appropriations subcommittees and staff said that the
changes in budget accounts and presentations shifted the focus away from
programs and items of expenditures of interest to congressional
appropriators and instead highlighted strategic and performance goals.
While these staff expressed general support for budget and performance
integration, they objected to changes that replaced information, such as
workload and output measures, traditionally used for congressional
appropriations and oversight with the new performance perspective. The
importance of workload and output measures for making budget decisions is
also important at the state level. In our recent review of state
performance budgeting efforts, state officials indicated this information
was most relied upon by legislators when determining funding levels and
desired levels of service relative to funding.
Agencies' implementation experiences to date highlight a number of
challenges and issues for current and future budget restructuring efforts,
such as gaining congressional support and improving financial and
performance information. Achieving better alignment and integration
between budget and performance planning structures has the potential to
promote greater attention to performance issues in budgeting, but only if
supported by key executive and congressional decision makers. While some
agencies have demonstrated sustained commitment by agency leadership, this
commitment has not yet been shared by congressional appropriators and
other decision makers. Some congressional staff were concerned about what
they described as insufficient consultation in developing the new budget
structures. Questions have also been raised about the ability of agencies'
performance and financial management systems to support the allocation and
tracking of resources adequately within the new budget structures. Some
budget experts and agency officials suggested that improving underlying
financial and performance information should be a prerequisite to
restructuring budgets and that, in their opinion, this step is more
important to improving management and oversight than the recent budget
restructuring efforts. To the extent budget decisions are to be based on
this information, the credibility of the underlying systems supporting the
allocation of costs to performance becomes more critical.
Budget restructuring is one tool among many that can advance
results-oriented management. However, it involves significant trade-offs
between different types of information and accountability frameworks and
has implications for the balance between managerial flexibility and
congressional oversight and control. Thus, Congress must be considered a
partner in the effort. While congressional buy-in is critical to sustain
any major management initiative, it is especially important for
performance budgeting given Congress' constitutional role in setting
national priorities and allocating the resources to achieve them. The
concerns raised by appropriations staff suggest that when creating
"performance budgets" OMB and agencies should find ways to supplement,
rather than replace, key information used by the appropriations committees
to make decisions. The greatest challenge of budget restructuring may be
discovering ways to reflect both the broader planning perspective that can
add value to budget deliberations and foster accountability in ways that
Congress considers appropriate for meeting its appropriations and
oversight objectives. Moving forward without agreement on whether and how
to structure budgets, without agreement on how to measure and report cost
and performance information, and without the ability to track and explain
how resources are spent in various ways may result both in more work-as
agencies prepare budgets in multiple forms-and in structures that fall
short of achieving their objectives.
Going forward, the important goal of infusing a performance perspective
into budget decisions may only be achieved when the underlying supply of
information becomes more credible, compelling, accepted, and used by all
significant decision makers in the system. Indeed, if budget decisions are
to be based on this cost and performance information, there is a more
compelling need to improve the integrity of the data. As OMB's own PART
reviews suggest, much work remains to be done in improving the underlying
information, evaluations, and systems within agencies to support
performance goals. Ultimately, once the goals and underlying information
become more compelling and used by Congress, budget restructuring may come
to be viewed as a strategy to advance congressional budgeting and
oversight objectives. In other words, the budget structure may come to
reflect-rather than drive-the use of performance and cost information in
budget decisions.
Consistent with GPRA, OMB sought to forge stronger linkages between
Background
plans and budgets and to prompt greater attention to results in the
resource allocation process. Over the last 10 years, OMB has discussed the
need to reexamine appropriations account structures to better align them
with program outputs and outcomes and to charge the appropriate account
with significant costs used to achieve these results. OMB said that
multiple accounts leading to the same output or outcome may inhibit a
manager striving to achieve results. Also, some program activities within
appropriations accounts show either inputs or only a portion of the
funding for an output and make it difficult to show the full annual cost
of resources used to achieve results. For example, the budget resources
used to achieve VA's burial program performance goals are not readily
apparent under its current appropriations account structure. The burial
program is funded by six appropriations accounts spread across separate
volumes of its congressional budget justification.
GAO Analysis
Variety of Efforts Undertaken to Restructure Budgets to Better Align
Budget Resources with Performance
More recently, OMB placed greater emphasis on budget restructuring by
including it as one effort in the BPI initiative of the PMA that was
issued in August 2001. Beginning with the Circular A-11 for the fiscal
year 2004 budget, OMB provided guidance to agencies on ways to restructure
their appropriations accounts and congressional budget justifications and
later required agencies to submit a "performance budget" for fiscal year
2005 to OMB and Congress. While the PMA and OMB's recent "performance
budget" requirements provided greater incentives to move in this
direction, some case study agencies began thinking about budget
restructuring and ways to better align the budget with performance before
the PMA was introduced. One case study agency's effort to better align
budget resources with performance could be seen in the budget as early as
1998.
The nine agencies we reviewed took different approaches to restructuring
budgets to better align budget resources with performance. Table 1 shows
that the budget structure (e.g., appropriations account, program activity
listing, or congressional budget justification) affected in the nine
agencies in our study varied.
Table 1: Where Agencies Made or Proposed Changes to Better Align Budget
Resources with Programs and Performance
VA NASA DOJ EPA SBA COMMERCE HUD LABOR DOT
Changes to Changes to X X X a
appropriations accounts
account Changes within X X X X X b a
structure accounts to
program activities
Changes to congressional budget X X X X X X Xc X X
justification
Source: GAO analysis.
aSome bureaus within DOT made or proposed changes to their account
structure and program activities within accounts to better align with
performance, but DOT as a whole did not restructure its budget accounts.
bThe Pension Benefit Guaranty Corporation and the Employment and Training
Administration made or proposed changes to the program activities within
their appropriations accounts, but according to Labor officials these
changes reflect policy changes. Labor as a whole did not restructure its
appropriations accounts to better align resources with programs or
performance.
cFor the fiscal year 2004 budget only. The House Appropriations Committee
directed HUD not to submit a "performance budget" for fiscal year 2005 and
consequently, HUD did not resubmit a "performance budget" for fiscal year
2005.
While some changes or proposed changes sought to modify the way resources
are appropriated and thus the framework for resources trade-offs, other
changes sought to provide additional information on the connection between
budget resources and programs and performance for presentational purposes.
The three agencies proposing account structure changes-NASA, VA, and
DOJ-requested that budget authority be appropriated to cover the "full
cost" of programs or collections of programs that support common goals.13
The remaining six agencies-Commerce, Labor, DOT, EPA, HUD, and SBA- for
the most part maintained their existing appropriations account structures
that reflected a mix of orientations and either restructured their
congressional budget justifications to reframe their budget request around
the "full cost" of performance or provided supplemental crosswalk tables
to show the "full cost" or "total budgetary resources" of performance
units for presentational purposes. In addition, some agencies also sought
corresponding changes to other methods by which Congress oversees resource
use, including transfer authority and reprogramming guidelines.14
In most of the selected agencies, the organizing framework of each
agency's congressional budget justification followed its appropriations
account structure; however, three agencies in our study-EPA, SBA, and
HUD-used organizing frameworks for their congressional budget
justification that did not match their appropriations account structures.
For example, EPA's appropriations account structure generally reflects a
mix of orientations, including object (items of expense) and organization.
However, EPA organized its congressional budget justification by strategic
goal. Any one strategic goal might have been funded by multiple
13 Congress, specifically the appropriations committees, establishes
appropriations accounts to facilitate congressional allocation and
oversight responsibilities. The President's budget generally reflects
these appropriations account structures, but the executive branch may
propose changes to the structure.
14 Transfer authority is specifically authorized by law and allows
shifting all or part of the budget authority provided in one
appropriations account to another. Reprogramming is shifting funds within
an appropriations account to use them for different purposes than those
contemplated at the time of appropriation. Sometimes committee oversight
of reprogramming is prescribed by statute requiring that the agencies
either notify or consult with the appropriate congressional committees
when reprogramming funds that have certain program impacts or are above a
certain threshold.
Budget Restructuring Has Potential to Help Reframe Budget Choices
appropriations accounts. As a result, it was easier to see the resources
associated with strategic goals and objectives in the congressional budget
justification but more difficult to see the resources associated with each
appropriations account.15
Agencies linked budget resources to various levels of performance in their
congressional budget justifications. Most agencies in our review aligned
budget resources to programs or collections of programs that support
common strategic goals. Four agencies-EPA, SBA, HUD, and DOT- aligned
budget resources to strategic goals or objectives or both, and three
agencies-Commerce, Labor, and DOT-aligned budget resources to performance
goals.
While agencies included in our study all took steps to more completely
capture the "full cost" of programs and performance, the types of
resources agencies allocated to program and performance units varied. In
particular, the treatment of central administrative resources and IG
office resources differed. For example, EPA allocated 100 percent of its
resources to its strategic objectives. NASA and SBA each allocated almost
all resources except for the IG to their programs and goals. Other
agencies, including VA and DOJ, did not allocate central administrative
resources to their programs. Thus, what was described as "full cost" or
"total budgetary resources" was not the same in all agencies. This lack of
consistency has the potential to complicate the understanding of what is
meant by "full cost" and "total budgetary resources." For more information
on how the resources allocated to programs and performance differed, see
section 2.2c.
Recent budget restructuring efforts have sought to help reframe budget
choices and to focus decisions more on the expected results of budget
resources and less on inputs or line items. The different approaches used
by agencies in our review provide different information and incentives and
thus have different implications for management and oversight. For
example, appropriations account structure changes, which change the
statutory control over resources, generally have a greater potential to
change management and oversight than changes to congressional budget
15 This refers to changes made up through EPA's fiscal year 2005 budget
justification. For fiscal year 2006, EPA restructured its budget
justification so that it is organized by appropriations account and
program/project.
Page 12 GAO-05-117SP Performance Budgeting
Budget Restructuring Viewed by Some as Supporting Results-Oriented
Management and Oversight
justifications alone, which may be primarily presentational. Regardless of
the approach used, a full understanding of the implications of budget
restructuring efforts cannot be understood without looking also at the
effect of corresponding changes to the other methods by which Congress and
agencies oversee and manage budget resources, such as earmarks and
reprogramming guidelines. (See section 3.2b for a more detailed
discussion.)
OMB staff and agency officials credited these appropriations account and
congressional budget justification changes with supporting
results-oriented management. Officials we spoke with or documents we
reviewed from five agencies indicated that the restructured budgets
increased the attention to strategic planning, performance, and results
during internal budget deliberations and, in some of these agencies,
increased the coordination of programs supporting common strategic goals
or objectives. Also, OMB staff and officials from seven agencies credited
budget restructuring with providing more complete information on the
budget resources associated with performance.
Officials we spoke with from six agencies also emphasized that the changes
went beyond providing more complete information on the resources
associated with programs or performance to providing incentives to
recognize resource trade-offs and the flexibility to make them. For
example, a key objective of NASA's restructuring was to provide incentives
for improved resource management. According to NASA officials, because
NASA's program budgets now include direct and indirect budget resources
associated with a project and managers are responsible for these
resources, managers have better information and incentives to be cost
effective and the flexibility to make trade-offs between various
resources, such as administrative costs, supplies, direct civil servants,
and contractors or consider whether lower cost alternatives exist. In
addition, NASA officials credited "full cost" budgeting with helping to
identify underutilized facilities. Because service pool16 resources are
allocated to NASA's programs and included as part of program budgets based
on use, NASA said underused service pools became more visible. If programs
did not cover a service pool's costs, NASA officials said that it would
raise questions about whether that capability was needed. (See section
3.3a for
16 Service pools are infrastructure capabilities that support multiple programs
and projects.
Page 13 GAO-05-117SP Performance Budgeting
Some Noted Limitations and Concerns
a more detailed discussion of the perceived benefits of budget
restructuring.)
Despite these perceived benefits, officials from two case study agencies
raised concerns that budget restructuring has the potential to complicate
resource management by, among other things, reducing flexibility to
respond to changing needs across program accounts, creating budget
execution difficulties, or adversely affecting the balance between
maintaining institutional capacity-its physical assets and workforce-and
operational efficiency. For example, some VA officials raised concerns
that VA's proposed account structure might affect their ability to respond
to changes in benefit claims. Currently, administrative costs are funded
through one appropriations account so VBA can shift administrative funds
among multiple programs throughout the year to address performance issues
or respond to changes in benefit claims that might arise. Under the
proposed appropriations account structures for fiscal years 2004 and 2005,
each benefit program's administrative expenses would have been funded from
separate appropriations accounts; as a result, shifting administrative
funds among program appropriations accounts throughout the year would
require transfer authority and VBA's ability to respond to changing needs
would have been more limited.
Appropriations committee reports and subcommittee staff for the most part
reflect congressional concerns and sometimes disapproval of budget
restructuring efforts. Although some appropriations committee reports and
staff we spoke with expressed general support for efforts to better link
budget resources to performance, they were generally less comfortable with
specific proposed changes. For the most part, committees continued to
state a preference for and use previously established structures. For
example, of the three agencies that proposed agencywide appropriations
account changes-NASA, VA, and DOJ-only NASA was appropriated under the new
structure. Several staff said that the organizational frameworks agencies
used to restructure budgets did not align with how the agency operated,
relied on units for which the agency was unable to track spending, did not
provide useful information, or did not align with the focus of
congressional appropriations committees. For example, appropriations
subcommittee staff for EPA said that because appropriators generally focus
on and fund resources by program, the congressional budget justification
structured around strategic goals and objectives did not provide
information they need. In 2004, after receiving justifications structured
around performance for 7 years, the House and Senate appropriations
subcommittees urged EPA to reformat its congressional budget
justification.17 In response, EPA structured its fiscal year 2006 budget
justification around appropriations accounts and program/projects.
Further, several staff said the restructured congressional budget
justification not only introduced new perspectives but omitted information
that appropriators have come to rely on such as changes to appropriations
language and funding levels, historical information, funding levels by
program or state, object class information, workload information, and
detailed cost information. Lastly, some subcommittee staff said they found
the narrative included in performance-based congressional budget
justifications too voluminous and that, while it might be useful
information, it is too cumbersome and difficult to use. As expressed in
one committee report, "In the place of critical budget-justifying
material, the Committee is provided reams of narrative text expounding on
the performance goals and achievements of the various agencies."18
(Section 3.3b provides a more detailed description of congressional
concerns.)
Executive branch officials and staff with whom we spoke expressed
differing views on the extent to which appropriations account structure
changes are important for efforts to advance results-oriented management.
Some saw the changes in appropriations accounts structures as necessary to
reinforce transformations in agency culture and accountability processes.
However, most did not view these changes as critical to their efforts to
advance results-oriented management at this time. In the view of some
officials, budget restructuring alone does not necessarily provide the
detailed cost and performance information most useful for advancing
results-oriented management and addressing some key management challenges.
Some agency officials, congressional appropriations committee staff, and
budget experts suggested that improving underlying financial and
performance information should be a prerequisite to restructuring budgets
and that, in their opinion, this step is more important to improving
management and oversight than the recent budget
17 House Committee on Appropriations Report 108-674, Departments of
Veterans Affairs and Housing and Urban Development, and Independent
Agencies Appropriations Bill, 2005 (Sept. 9, 2004), p. 91; Senate
Committee on Appropriations Report 108-353, Departments of Veterans
Affairs and Housing and Urban Development, and Independent Agencies
Appropriations Bill, 2005 (Sept. 21, 2004), p. 111, and H.R. Conf. Rep.
No. 108792, p. 1597 (2004).
18 House Committee on Appropriations Report 108-671, Departments of
Transportation and Treasury and Independent Agencies Appropriations Bill,
2005 (Sept. 8, 2004), p. 5.
Budget Restructuring Efforts Face Challenges
restructuring efforts. Others noted that efforts to develop improved
performance measures and metrics have a much greater impact on
results-oriented management than budget restructuring. These officials
noted that management initiatives were generally advanced when internal
management and accountability processes were recast to focus on
performance and results, but budget restructuring was not viewed as
essential to foster this shift in managerial perspective.
History has shown that designing effective approaches to achieve
meaningful connections between performance and budget structures is a
complex undertaking. Restructuring budgets inevitably requires trade-offs
among the needs and perspectives of Congress and other decision makers
because budget structures reflect fundamental choices about how to frame
budget choices and influence controls and incentives. In many cases,
Congress and other key decision makers-OMB and different levels of agency
management-have not reached consensus on the value of restructuring
budgets or the frameworks used to do so. This is not surprising given the
different roles these decision makers have within our constitutional
system of separated powers. However, developing budget structures that
balance the needs of both the executive and legislative branches is made
more difficult if there is no consultation; some agency officials and
congressional appropriations subcommittee staff we spoke with said there
was insufficient dialogue between agencies and appropriators on agencies'
budget restructuring efforts.
This lack of consensus, whatever the cause, has and will likely continue
to raise challenges for those attempting to develop and implement
restructured budgets. Agencies' experiences have shown that pursuing
restructured budgets without the agreement-or at least acquiescence of
appropriations subcommittees-can result in significant resources being
used to develop budget structures that are rejected or, if accepted, do
not fully meet congressional needs. For example, although Congress
accepted EPA's fiscal year 1999 through 2005 congressional budget
justifications structured around strategic goals and objectives and
allowed reprogramming within strategic objectives, Congress required that
EPA provide program information and continued to set specific funding
levels in committee reports based on programs.19 Appropriations
subcommittee
19 According to our analysis, over 50 percent of EPA's budget is dedicated
to specific programs.
Page 16 GAO-05-117SP Performance Budgeting
Lessons Learned
Executive Summary
staff said that they generally did not use the performance-based budget to
conduct their work; rather they used the program-based information they
requested from EPA.
Structuring budgets to better capture the "full cost" of programs and
performance involves numerous judgments, such as the contribution of
various programs to achieve goals and objectives and the allocation of
resources among these programs and goals. However, questions have been
raised about agencies' capacity to develop meaningful allocations and
track costs within the new frameworks. Indeed, both GAO and IGs have
reported weaknesses in several of our case study agencies' financial
management systems in providing reliable, useful, and timely financial
information, including cost data.20 Thus, while budget restructuring might
provide a more complete picture of the resources associated with expected
results, it is dependent on these underlying systems and assumptions.
These challenges suggest that budget restructuring may be a long-term,
iterative process requiring flexibility to explore different approaches.
Budget restructuring is one tool that can support results-oriented
management. However, it involves significant trade-offs between
information provided and accountability frameworks used. Congress, OMB,
and agencies hold differing views on the information and incentives
necessary to support effective decision making and oversight. Recent
efforts to increase the focus on results in congressional budget
justifications have generally reduced the visibility of other information,
such as workload and output measures, that congressional appropriations
committees consider important for making resource allocation decisions.
The need for workload and output measures for making resource allocation
decisions is not unique to the federal government. State officials
indicated this information is used by legislators in making resource
allocation decisions, as discussed in our most recent review of state
performance budgeting efforts.
The history of budget reform suggests that budget structures will
necessarily reflect multiple perspectives on resource allocation.
Performance goals and planning structures can clearly add value to budget
debates by focusing attention on the broad missions and outcomes that
20 GAO, Financial Management: FFMIA Implementation Necessary to Achieve
Accountability, GAO-03-31 (Washington, D.C.: Oct. 1, 2002).
Page 17 GAO-05-117SP Performance Budgeting
individual programs and activities are intended to address. However,
budget structures also serve the legitimate role of helping Congress
control and monitor agency activities and spending by fostering
accountability for inputs and outputs within the control of agencies. The
greatest challenge of budget restructuring may be discovering ways to
address these competing values that are mutually reinforcing, not mutually
exclusive. The concerns raised by appropriations staff suggest that when
creating "performance budgets" OMB and agencies find ways to tailor the
agencies' performance information to meet those needs and to supplement,
rather than replace, key information used by Congress to make decisions.
While congressional buy-in is critical to sustain any major management
initiative, it is especially important for performance budgeting given
Congress' constitutional role in setting national priorities and
allocating the resources to achieve them. Experience suggests that
Congress needs to be comfortable with the appropriateness and utility of
the new budget structures since budget structures fundamentally shape the
focus of appropriations decisions as well as the nature of the controls
through which Congress oversees executive agencies' spending. Accordingly,
if performance goals and measures are to become the basis for the new
budget structures, Congress must view them as a compelling framework
through which to achieve their own budgetary objectives. Indeed, GPRA
itself was premised on a cycle where measures and goals were to be
established and validated during a developmental period before they were
subjected to the rigors of the budget process.
This suggests that the goal of enhancing the use of performance
information in budgeting is a multifaceted challenge that must build on a
foundation of accepted goals, credible measures, reliable cost and
performance data, tested models linking resources to outcomes, and
performance management systems that hold agencies and managers accountable
for performance. Restructuring appropriations accounts and presentations
to better capture the "full cost" of performance is part of this agenda as
well. However, creating performance budgets without establishing and
validating the requisite foundation and consensus on measures and goals
among primary decision makers will likely not succeed in gaining support
in the budgetary decision-making process. While some argue that budget
restructuring might be necessary to provide incentives to take the
performance goals seriously and improve the underlying information, our
work suggests that restructuring can only take root once support exists
for the underlying performance goals and metrics. In due course, once the
goals and underlying information become more compelling and are used by
Congress, budget restructuring may become a more compelling tool to
advance performance budgeting. In other words, the budget structure will
more likely reflect-rather than drive-the use of performance and cost
information in budget decisions.
We provided a copy of the draft report to OMB and the nine agencies in our
Agency Comments
review for comment. OMB said they generally agreed with the report's
findings and had no specific comments. VA, Commerce, and DOJ did not
provide any comments. NASA, Labor, EPA, DOT, HUD, and SBA provided
technical comments, which we incorporated as appropriate.
Section 1: Introduction
1.1: Recent Budget Restructuring Efforts Are Part of Broader Efforts
toward a More Results-Oriented Federal Government
Budgeting-the allocation of resources among multiple claims-is the process
for making choices among often-conflicting objectives. How the budget is
structured matters a great deal because these structures frame fundamental
choices about resource allocation and the types of controls and incentives
provided. Over the past 50 years, various efforts have sought to
restructure budgets so as to link budgetary and performance information.
The Office of Management and Budget (OMB) and agencies are again looking
at these issues as part of the President's Management Agenda (PMA). These
efforts fall under the PMA's Budget and Performance Integration initiative
(BPI). One element of BPI involves budget restructuring1-changes to
appropriations accounts and congressional budget justifications to better
align budget resources with programs and performance (i.e., to better
capture the "full cost" of programs and performance). Past efforts at
budget restructuring have proven complex and posed challenges. These
challenges have included structuring budgets in ways that can meet the
multiple perspectives and needs of Congress, OMB, and different levels of
management at executive branch agencies. Lessons learned from past
initiatives can provide insights useful in considering today's efforts,
such as understanding that no single definition or structure encompasses
the range of needs and interests of federal decision makers.
Recent OMB and agency efforts to restructure appropriations accounts and
congressional budget justifications to better align budget resources with
programs and performance are part of broader efforts toward achieving a
more results-oriented government. Over the last decade a statutory and
management framework was established, and Congress, OMB, and other
executive agencies have worked to implement it to improve the performance
and accountability of the executive branch and to enhance executive branch
and congressional decision making. Key components of this framework
include the Government Performance and Results Act (GPRA), the Chief
Financial Officers (CFO) Act, and the Government Management Reform Act
(GMRA). Among their complementary purposes,
1
For purposes of this report, the term budget restructuring is used to
describe changes to budget structures and measurement to better align
budget resources with programs and performance. Budget restructuring
involves both (1) alignment: structural and format changes to
congressional budget justifications, and in some cases, appropriations
accounts to better align budget resources with programs and performance;
and (2) "full cost:" changes to the way certain budget resources are
distributed or measured to better reflect where and when resources are
consumed.
these acts seek to inform congressional oversight and executive decision
making by providing information on the relative effectiveness and
efficiency of federal programs and spending and to help federal managers
improve service delivery by providing them with information about program
results, costs, and service quality. As a result of this framework, there
has been substantial progress in the last few years in establishing the
basic infrastructure needed to create high-performing federal
organizations.
However, the federal government is in a period of profound transition and
faces an array of challenges and opportunities to enhance performance,
ensure accountability, and position the nation for the future. A number of
overarching trends, such as diffuse security threats and homeland security
needs, increasing global interdependency, the shift to a knowledge-based
economy, and the looming fiscal challenges facing our nation drive the
need to reconsider the role of the federal government in the 21st century,
how the government should do business (including how it should be
structured), and in some instances, who should do the government's
business. GAO has sought to assist Congress and the executive branch in
considering the actions needed to support the transition to a more
high-performing, results-oriented, and accountable federal government.2
This report focuses on one strategy-budget restructuring-suggested to
increase the focus on performance and results during budget deliberations.
GPRA explicitly sought to promote a connection between performance plans
and budgets with a key objective of helping Congress, OMB, and other
executive branch agencies develop a clearer understanding of what is being
achieved in relation to what is being spent. The expectation was that
agency goals and measures would be taken more seriously if they were
perceived to be useful and used in the resource allocation process. By
requiring that an agency's annual performance plan cover each program
2 GAO has engaged in constructive reviews of GPRA and various executive
branch efforts to improve performance and accountability. See, for
example, Results Oriented Government: GPRA Has Established a Solid
Foundation for Achieving Greater Results, GAO-04-38 (Washington, D.C.:
Mar. 10, 2004) and Performance Budgeting: Observations on the Use of OMB's
Program Assessment Rating Tool for the Fiscal Year 2004 Budget, GAO-04-174
(Washington D.C.: Jan. 30, 2004).
Page 21 GAO-05-117SP Performance Budgeting
activity3 in the President's budget request for that agency, GPRA
established a basic foundation for linking resource allocation decisions
and results. However, recognizing that agencies' program activity
structures are often inconsistent across appropriations accounts, the act
did not specify a level of detail or components needed to achieve this
coverage. Agencies are provided flexibility to consolidate, aggregate, or
disaggregate program activities so long as no major function or operation
of the agency is omitted or minimized.
The CFO Act, as amended, also provides a foundation for understanding the
connection between resources and results. The act sought to remedy the
government's lack of timely, reliable, useful, and consistent financial
information. Twenty-four agencies are required to prepare financial
statements annually and have them audited. The required statements
include, among other things, a statement of net cost. The statement of net
cost is intended to provide timely and reliable cost information to (1)
help ensure that resources are spent efficiently to achieve expected
results, and
(2) compare alternative courses of action.
Other core components of this framework include financial management
statutes that expanded and amended the CFO Act, such as GMRA and the
Federal Financial Management Improvement Act (FFMIA) (see table 2). In
addition, the Federal Accounting Standards Advisory Board (FASAB)4
developed managerial cost accounting standards aimed at providing reliable
and timely information "on the full cost of federal programs, their
activities, and outputs."5 If successfully implemented these reforms
provide the basis for improving accountability of government programs and
operations as well as routinely producing valuable cost and
3
The term "program activity" refers to the listings shown in the Program
and Financing (P&F) schedule of the Appendix portion of the Budget of the
United States Government. Program activity structures are intended to
provide a meaningful representation of the operations financed by a
specific budget account usually by projects, activities, or organization.
4 The Comptroller General of the United States, the Director of OMB, and
the Secretary of the Treasury established FASAB in October 1990 to develop
accounting standards and principles for the U.S. government. To meet its
unique mission, FASAB considers the information needs of the public,
Congress, managers, and other users of federal financial information.
5
Federal Accounting Standards Advisory Board, Statement of Federal
Financial Accounting Standards Number 4: Managerial Cost Accounting
Standards and Concepts (Washington, D.C.: July 31, 1995).
performance information that can inform resource management and oversight
decisions. All these efforts recognize that improving cost and performance
information to better understand the connection between resources and
results is essential to promoting a more results-oriented government. And,
taken together, they lay the groundwork for current and future reform
effects to better integrate performance, budget, and cost information.
Table 2: Statutory Framework for Improving Accountability of Federal Government,
1990 through 1996
Reform Description
Government Performance and Results Act of 1993, P.L. 103-62
A key part of the statutory framework, GPRA requires executive branch
agencies to complete strategic plans in which they define their missions,
establish results-oriented goals, and identify the strategies that will be
needed to achieve those goals. GPRA also requires executive branch
agencies to prepare annual performance plans that articulate
results-oriented annual goals for the upcoming fiscal year that are
aligned with their long-term strategic goals. GPRA also requires that
annual performance plans be tied to budget requests by linking annual
goals to the program activities displayed in the budget presentations.
Agencies also are required to annually issue performance reports that
provide important information to agency managers, policymakers, and the
public on what each agency accomplished with the resources it was given.
Chief Financial Officers Act of 1990, P.L. 101
The CFO Act laid the legislative foundation for the federal government to
provide taxpayers, the nation's leaders, and agency program managers with
reliable financial information. The CFO Act provided a framework for
improved federal government financial systems, with a focus on program
results in part by centralizing within OMB the establishment and oversight
of federal financial management policies and practices. The CFO Act also
set up a series of pilot audits whereby certain agencies were required to
prepare agencywide financial statements and subject them to audit by the
agencies' inspectors general.
Government Management Reform Act of 1994, P.L. 103-356
The Government Management Reform Act expanded the CFO Act by, among other
things, extending financial statement preparation and audit requirements
to 24 agencies beginning with fiscal year 1996 and for the preparation and
audit of consolidated financial statements for the federal government
beginning with fiscal year 1997. The covered agencies are to prepare the
statements in accordance with federal standards developed by FASAB,
including a requirement for cost information.
Federal Financial Management Improvement Act of 1996, P.L. 104-208, Div.
A, Title I, sec. 101(f) [Title VIII], 110 Stat. 3009-389
The purpose of FFMIA is to ensure that agency financial management systems
comply with federal financial system requirements, applicable federal
accounting standards, and the United States Government Standard General
Ledger to provide uniform, reliable, and more useful financial
information, including managerial cost accounting information, to evaluate
program and activities on their "full costs and merits," to make fully
informed decisions, and to ensure accountability on an ongoing basis.
Source: GAO analysis.
The federal government is moving into an important and more difficult
phase of implementation-formally using results-oriented performance and
cost information as part of agencies' day-to-day management and
Page 23 GAO-05-117SP Performance Budgeting
congressional and executive branch decision making. Within this area, one
important and long-standing issue is how to better integrate performance,
cost, and budget information to better support resource allocation
decisions. Among the issues to be resolved are if, how, and to what extent
the budget might be restructured to help and encourage better
understanding of the connection between budget resources and performance
and to support more effective and efficient resource use. The federal
budget is organized into about 1,100 appropriations accounts, and most
accounts have subsidiary program activities that show budget authority of
more specific levels of inputs, outputs, or outcomes funded by the
account. While the current account structure may help satisfy
congressional control and oversight objectives, it does not always align
well with performance goals, nor does it always readily capture the "full
cost" of programs. For example, program activities may show only a portion
of the funding for an output or outcome and certain performance goals cut
across multiple program activities and appropriations accounts. Also, the
costs of a single program can sometimes be split among multiple accounts,
such as accounts for salaries and expenses and accounts for other
expenditure items such as capital or construction.
Concerns continue that a general lack of integration among performance,
budget, and financial management functions and reporting structures
impedes transparency and may hamper efforts to understand fully the
relationship between performance, requested resources, and resources
consumed. We have reported that closer integration among performance,
budgeting, and financial management functions and information might
provide greater reinforcement of results-oriented management efforts and
could help improve the quality and availability of budget, financial, and
performance information. Clearer and closer associations between
performance information and budget requests could more explicitly inform
and help focus budget discussions on performance.
However, it is important to recognize that budget and planning structures
serve different purposes. Achieving a connection between these structures
is easier said than done. There will almost always be tension between
these structures. Our past work suggests that the account structure has
evolved over time to help Congress control and monitor agencies activities
and spending and, as such, is geared more to fostering accountability for
inputs and outputs.6 On the other hand, performance plans need to be broad
and wide-ranging if they are to articulate the missions and outcomes
agencies seek to influence. Efforts to align budget and performance
structures represent more than structural or technical changes but
important trade-offs among different and valid perspectives and needs of
Congress, including appropriators and authorizers, and different levels of
Executive Branch management.
The current administration has taken several steps to strengthen the
integration of budget, cost, and performance information for which GPRA,
the CFO Act, and GMRA laid the groundwork. The administration included BPI
as one of its management initiatives under the umbrella of the PMA. The
PMA, by focusing on a number of targeted areas (including five mutually
reinforcing governmentwide goals and a number of program initiatives),
seeks to improve the performance and management of the government. As
shown in figure 1, BPI is one of five crosscutting initiatives within the
PMA and the initiative includes efforts such as the Program Assessment
Rating Tool (PART), improving outcome measures, and improving monitoring
of program performance. Budget restructuring to better align budget
resources with programs and performance is one effort within the BPI
initiative. As will be discussed in more detail in section 2, two aspects
of budget restructuring discussed as part of the BPI initiative included:
1. alignment: structural and format changes to congressional budget
justifications, and in some cases, appropriations accounts to better
align resources with programs and performance; and
2. "full cost:" changes to the way certain budget resources are
distributed or measured to better reflect where and when resources are
consumed.
6 GAO, Budget Account Structure: A Descriptive Overview, GAO/AIMD-95-179
(Washington, D.C.: Sept. 18, 1995).
Page 25 GAO-05-117SP Performance Budgeting
Figure 1: Relationship among the PMA, the BPI, and Budget Restructuring
Source: GAO.
In outlining its BPI initiative, the current administration expressed
concern that the structure of the federal government budget "makes it
impossible to identify the full cost associated with individual
programs."7 The administration stated that it would seek to "integrate
more completely information about costs and programs performance in a
single oversight process." According to the administration, the initiative
would include "budgeting for the full cost of resources where they are
used, making budget program and activity lines more parallel with outputs,
and, where useful, improving alignment of budget accounts." With regard to
"full cost," the administration transmitted legislative changes that
proposed to more completely recognize the accruing costs of federal
employee retirement
7 The President's Management Agenda, Fiscal Year 2002, p. 28.
benefits. The administration noted that additional legislative changes may
be necessary to better align other resources with results in the budget.
OMB officials and staff we spoke with described restructuring budgets to
better align budget resources with programs and performance as supporting
efforts to achieve a more results-oriented government. Because the budget
is the basis for resource allocation decisions, strengthening the link
between resources and performance in congressional budget justifications
is viewed as an important step to increase the focus on performance in
budget deliberations. Moreover, an OMB staff member said changing the
appropriations account structure could help better inform and drive budget
decisions by providing not only the information but also the incentives to
recognize and make resource trade-offs to manage resources more
efficiently. According to the fiscal year 2004 Analytical Perspectives, "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." Thus,
according to OMB staff, aligning authority and accountability-or,
appropriating budget authority8 by programs and outcomes-provides both the
information and incentives to allocate resources and the flexibility to
execute the budget with a focus on effectiveness.
OMB staff said appropriations account structure changes may not be
necessary. Beginning with the fiscal year 2005 budget, OMB required
agencies to change their congressional budget justification. According to
OMB the structure of a "performance budget" justification-by explaining
goals, how they will be achieved, and what resources are required-
encourages an analytical congressional budget justification that answers
key questions in an organized format and might enhance public and
congressional understanding of government performance.9
8
Budget authority is authority provided by law to enter into financial
obligations that will result in immediate or future outlays involving
federal government funds. The basic forms of budget authority include (1)
appropriations, (2) borrowing authority, (3) contract authority, and (4)
authority to obligate and expend offsetting receipts and collections.
Budget authority may be classified by its duration (1-year, multiple year,
or no-year), by the timing of the legislation providing the authority
(current or permanent), by the manner of determining the amount available
(definite or indefinite), or by its availability for new obligations.
9
Office of Management and Budget, Analytical Perspectives, Budget of the
United States Government, Fiscal Year 2003 (Washington, D.C.: February
2002).
1.1a: Alignment of Budget and Performance Structures Is a Long-Standing
and Complex Issue
Improving the connections between budget and performance information is
not a new or simple task. Since about 1950 the federal government has
attempted several governmentwide initiatives designed to better align
spending decisions with expected performance.10 These efforts provide
insights into both the potential limitations of establishing performance
structures that are not clearly linked to the budget as well as some of
the challenges associated with trying to better align performance and
budget structures. Table 3 provides a brief overview of the objectives of
some previous initiatives as well as some of the challenges faced in terms
of better aligning budget and performance structures.
Table 3: Overview of Some Previous Initiatives
Previous initiative Brief description
Hoover Commissions 1949 and 1953
In 1949 the first Hoover Commission's recommendations were intended to
shift the focus away from the inputs of government to its functions,
activities, costs, and accomplishments. Rather then emphasizing items of
expenditure, such as salaries, a "performance budget" was to describe the
expected outputs resulting from a specific function or activity.
Consistent with the Commission's recommendations, Congress enacted the
Budget and Accounting Procedures Act of 1950 that, among other things,
required the President to present in his budget submission to Congress the
"functions and activities" of the government, ultimately
institutionalizing as a new budget presentation "obligations by
activities." These presentations continue today although they are now
referred to as "obligations by program activity" or more informally
"program activities." However, reflecting on the implementation of the
first Commission's recommendations, the Second Hoover Commission observed
that many programs did not have adequate cost information and suggested
that budget activities and organizational patterns be made consistent and
accounts established to reflect this pattern. The Commission suggested
that budget classification, organization, and accounting structures should
be synchronized.
Planning, Program-Budgeting System (PPBS)
PPBS, mandated governmentwide in 1965, introduced a decision-making
framework to executive branch budget formulation that involved presenting
and analyzing choices among long-term policy objectives and alternative
ways of achieving them. As originally designed, PPBS information systems
were not expected to correlate to the President's budget submission to
Congress. However, a later Bureau of the Budget bulletin directed agencies
to provide crosswalks between their PPBS and appropriations structures.
This "two-track system" was found to be burdensome, and subsequent efforts
to align PPBS program structures with the federal budget were ultimately
unsuccessful. While the Department of Defense continues to use PPBS
procedures, the governmentwide initiative was formally discontinued in
1971.
10
For a more detailed discussion of these initiatives, see GAO, Performance
Budgeting: Past Initiatives Offer Insights for GPRA Implementation,
GAO/AIMD-97-46 (Washington, D.C.: Mar. 27, 1997).
Page 28 GAO-05-117SP Performance Budgeting
(Continued From Previous Page)
Previous initiative Brief description
Management by Objectives (MBO) 1973
Initiated in 1973, MBO put in place a process to hold agency managers
responsible for achieving agreed-upon outputs and outcomes. While in its
first year no attempt was made to establish an explicit connection between
MBO and the budget process, ultimately a link between agencies' stated
objectives and their budget requests was sought. Although certainly
affected by President Nixon's resignation, MBO suffered from its initial
separation from existing budget formulation processes and from problems in
identifying and measuring objectives. The last objectives under MBO were
requested in 1975.
Zero-based Budgeting (ZBB) ZBB was an executive branch budget formulation
process introduced in 1977. Its main focus was on
1977 optimizing accomplishments available at alternative budget levels.
Under ZBB, federal agencies were expected to set priorities based on
program results that could be achieved at alternative spending levels, one
of which was to be below current funding. In concept, ZBB sought a clear
and precise link between budget resources and program results. The
initiative, however, faced a number of challenges. Initially there was no
attempt to explicitly connect the ZBB structure with agencies'
organizational structures or congressional budget justifications, and
crosswalks between the ZBB structure and the budget structure were viewed
as obscuring the analysis of alternative spending levels and performance.
Paperwork burdens also were cited as a problem for both agencies and
appropriators.
National Performance Review (NPR) 1993
In the mid-1990s, NPR-an executive branch reform effort aimed at making
the government "work better and cost less"-included hundreds of
recommendations generally intended to emphasize results and managerial
flexibility.a Among these recommendations, NPR included several proposals
to deal with "mission-driven, results oriented budgeting," including
restructuring appropriations accounts to reduce overitemization and align
them with programs. In a 1994 report on the status of NPR implementation,b
GAO cautioned that the degree of "overitemization" is a matter of
interpretation and political judgment. Further, GAO noted that one reason
for congressional attention on processes rather than on results has been
the absence of reliable performance data.
1.2: Lessons Learned in Performance Budgeting Initiatives Provide Insights
for Considering Current Restructuring Efforts
Source: GAO analysis.
aOffice of the Vice President, From Red Tape to Results: Creating a
Government that Works Better and Costs Less, Report of the National
Performance Review (Washington, D.C.: Sept. 7, 1993).
bGAO, Management Reform: Implementation of the National Performance
Review's Recommendations, GAO/OCG-95-1 (Washington, D.C.: Dec. 5, 1994).
As previous efforts have shown, determining effective approaches to
achieve meaningful connections between performance and budget structures
is a large and complex undertaking.
The lessons and common themes that have emerged from previous initiatives
provide insights for considering the most recent budget restructuring
efforts discussed in this report. First, previous efforts have shown that
any effort to link plans and budgets must actually involve both the
executive and legislative branches of our government. While congressional
buy-in is critical to sustain any major management initiative, it is
especially important for performance budgeting given Congress' central
role in setting national priorities and allocating the resources to
achieve them. Past initiatives often faltered because the executive branch
developed plans and performance measures in isolation from congressional
oversight and resource allocation processes. Second, previous efforts that
did not initially attempt to explicitly connect performance with the
budget showed the difficulty associated with using crosswalks and in
maintaining congressional interest in performance structures disconnected
from the congressional oversight and budget processes. For example, past
federal government performance budgeting initiatives have resulted in
unique and often voluminous presentations unconnected to the structure and
processes used in congressional decision making.
Third, past initiatives demonstrate that there is no single definition of
"performance budget" that encompasses the range of needs and interests of
federal decision makers.11 For example, while to some "performance
budgeting" might mean increasing the focus on results during budget
deliberations, it might mean greater flexibility and discretion in
operations to another. Finally, past initiatives showed that performance
budgeting cannot be viewed in simplistic terms. Ultimately, budgeting is
and will remain an exercise in political choice in which performance can
be one factor, but not necessarily the only factor underlying decisions.
Building on the lessons of these previous efforts, GPRA aimed for a closer
and clearer linkage between requested resources and expected results. As
noted previously, the act established a basic connection between an
agency's performance and budget structures by requiring an agency's
performance plan to cover each program activity in the President's budget
request for that agency. Our previous review of performance plans found
that agencies have made progress in demonstrating how their performance
goals and objectives relate to program activities in the budget.
Similarly, agencies' initial efforts to link performance plans to their
statements of net cost are improving, but some presentations are more
informative than others. Despite these improvements, we found that
additional effort is needed to more clearly describe the relationship
between performance
11 GAO, Performance Budgeting: Initial Agency Experiences Provide a
Foundation to Assess Future Directions, GAO/T-AIMD/GGD-99-216 (Washington,
D.C.: July 1, 1999).
Page 30 GAO-05-117SP Performance Budgeting
1.3: Challenges Confront Efforts to Better Align Budget and Performance
Structures
expectations, requested funding, and consumed resources.12 In addition,
the measures and goals used were to be established and validated during a
developmental period before being subjected to the rigors of the budget
process.
Efforts to align budget and performance structures confront the multiple
perspectives and needs of Congress, including congressional members and
staff serving on appropriations and authorizing committees, and other
decision makers such as officials and staff at OMB, and different levels
of agency management. These multiple perspectives are manifested in the
following three challenges, and any efforts to restructure budgets to
better align budget resources with programs and performance must address
these challenges:
o a fundamentally heterogeneous appropriations account structure that
serves many different needs and objectives,
o a variety of ways "costs" can be described and measured, and
o a variety of understandings of what constitutes and might be expected
from "performance budgeting."
1.3a: Appropriations Account Structure
Appropriations accounts are established by law and facilitate
congressional allocation and oversight responsibilities. Appropriations
accounts frame resource allocation decisions and the types of incentives
provided as well as serve as the unit of control. The appropriations
account structure, developed over the last 200 years, was not created as a
single integrated framework but rather developed, for the most part, as
separate accounts over time in response to specific needs. Although
appropriations acts generally establish appropriations accounts, the
appropriations account structure serves the needs and objectives of many
users of the budget and an intricate network of relationships among
Congress and these users. A continual challenge in structuring
12 GAO, Managing for Results: Agency Progress in Linking Performance Plans
With Budgets and Financial Statements, GAO-02-236 (Washington, D.C.: Jan.
4, 2002); and Performance Budgeting: Initial Experiences Under the Results
Act in Linking Plans with Budgets, GAO/AIMD/GGD-99-67 (Washington, D.C.:
Apr. 12, 1999).
Page 31 GAO-05-117SP Performance Budgeting
1.3b: Concept of "Cost"
appropriations accounts is finding ways to balance managerial flexibility
and congressional control.
Our previous review of appropriations accounts revealed a complex and
varied structure characterized by a mix of account orientations.13 Each of
the four orientations used in our previous analysis-object, organization,
process, and program-reflects a specific focus or interest of Congress. An
object orientation emphasizes the items of expense while an organization
orientation focuses on the responsible government unit. A process
orientation concentrates on the specific operations or approaches
underlying the federal activities. A program orientation focuses on the
missions and objectives of government units.14 All orientations were found
throughout the appropriations account structures. Within this varied
structure, a number of additional complexities related to better aligning
budget and performance structures exist. One complexity is that some
appropriations accounts with a program orientation include the resources
for a number of programs within a single account. However, other
appropriations accounts with a program orientation do not necessarily
capture all related program resources. For example, some programs separate
an appropriations account for salaries and expenses from other program
expenditure appropriations accounts.
Recent efforts to better align budget and performance structures often use
terms such as "full cost" and aim to provide improved and comparable cost
information. However, the various users of performance, budget, and cost
information may have different but valid perspectives on what is meant by
"cost." These differences determine how information and incentives are
framed and thus, the extent to which particular cost information might be
considered useful for a given purpose and user. Understanding these
different perspectives and approaches to cost provides insights into the
challenges associated with restructuring budgets in ways that will support
the various users' perspectives and needs.
13
GAO, Budget Account Structure: A Descriptive Overview, GAO-AIMD-95-179
(Washington, D.C.: Sept. 18, 1995).
14
The four orientations are a variation on a theme developed by Allen Schick
in "On the Road to PPB: The Stages of Budget Reform," in Perspectives in
Budgeting (Washington, D.C.: American Society for Public Administration,
1987).
Page 32 GAO-05-117SP Performance Budgeting
"Cost" generally can be thought of as the value of resources that have
been, or must be used or sacrificed to attain a particular objective.
However, what is meant by "cost" in a given situation depends on
o when costs are recognized,
o what unit of cost is being measured (e.g., strategic goal or program),
and
o the extent to which individual cost components (e.g., salaries,
materials, general administrative costs) are included in the measure.
When costs are measured varies based on the intended purpose. Users
focused on control over spending may want to recognize the complete costs
when a decision is made to commit resources. For example, the
obligations-based budget helps ensure upfront control over asset
acquisition costs by requiring budget authority for the full cost of the
asset when it is purchased. Conversely, users focused on performance
assessment (including cost efficiency and cost effectiveness) may want to
recognize resources when they are used to produce goods and services. For
example, accrual-based measurement records transactions in the period when
the underlying economic activity generating the revenue, consuming the
resources, or increasing the liability occurs, regardless of when the
associated cash is actually paid or received. Each method provides
different information on the "cost" of an object or activity.
What unit of cost is being measured helps frame decisions and has
implications for how cost information might be used, including the types
of questions that might be answered. For example, cost information could
be aligned to strategic or performance goals, to programs or activities,
or to more detailed levels of analysis such as the unit cost of a specific
output.
The extent to which individual cost components are included in "full cost"
may differ among users. "Full cost" is generally viewed as including both
direct costs (costs that can be specifically identified with a cost
object, such as an output, etc.)15 and indirect costs (costs of resources
that are jointly or commonly used to produce two or more types of outputs
but are
15 According to FASAB No. 4, Managerial Cost Accounting Standards and
Concepts, examples of direct costs include: salaries and other benefits
for employees who work directly on the output, materials and supplies used
in the work, office space, and equipment and facilities that are used
exclusively to produce the output.
Page 33 GAO-05-117SP Performance Budgeting
1.3c: The Concept of "Performance Budgeting"
not specifically identifiable with any of the outputs).16 However,
differences about what cost components to recognize as "full cost" will
arise in part due to different perspectives on what "costs" are critical
to achieving a given objective.
The concept of "performance budgeting"-essentially the process of linking
budget levels to expected results, rather than to inputs or activities-has
and continues to evolve. For many years, numerous experiments have
attempted to change the emphasis of budgeting from its traditional focus
on inputs to the allocation of resources based on program goals and
measured results. As noted earlier, past initiatives demonstrate that
there is no single definition of a "performance budget" that encompasses
the range of needs and interests of federal decision makers.17 As such,
Congress, OMB, and the agencies might hold a range of views and
perceptions about what is meant by "performance-based budgets" and
"performance budgeting" as well as what might be achieved. For example,
"performance budgeting" might be viewed in simplistic terms-that is,
resource allocation is mechanically linked to performance or as presenting
the varying levels of performance that would result from different budget
levels. However, performance information will not provide mechanistic
answers for budget decisions, nor can performance data eliminate the need
for considered judgment and political choice. Alternatively, "performance
budgeting" might be viewed as providing performance information in ways
that inform resource allocation decisions. The different interpretations
of the term "performance budgeting" increase the importance of
understanding the objectives of any particular initiative and its
elements.
"Performance budgeting" might best be thought of as an umbrella of tools
to increase the focus on performance during the budget process. An example
of a current initiative to increase visibility and focus on performance
information during budget deliberations is OMB's PART. The PART is a
diagnostic tool meant to provide a consistent approach to evaluating
federal programs as part of the executive branch budget
16 According to FASAB No. 4, Managerial Cost Accounting Standards and
Concepts, examples of indirect costs include: general administrative
services; general research and technical support; security; rent; and
operations and maintenance costs for building, equipment, and utilities.
17 GAO, Performance Budgeting: Initial Agency Experiences Provide a
Foundation to Assess Future Directions, GAO/T-AIMD/GGD-99-216 (Washington,
D.C.: July 1, 1999).
Page 34 GAO-05-117SP Performance Budgeting
1.4: Clarification of Report Focus and Terminology Used
formulation process, thereby more explicitly infusing performance
information into the budget at a level at which funding decisions are
made. Efforts might involve increasing credible cost and performance
information and improving the government's capacity to account for and
measure the total cost of federal programs and activities. Lastly,
improving the alignment of the account structure to align authority with
accountability and relate resources used to the results produced can also
fall under the umbrella of "performance budgeting."
While "performance budgeting" may be thought of as an umbrella of various
initiatives to better infuse performance information into the budget
process, the focus of this report is budget restructuring, which involves
1. alignment: structural and format changes to congressional budget
justifications, and in some cases, appropriations accounts to better
align budget resources with programs and performance; and
2. "full cost:" changes to the distribution or measurement of certain
budget resources to better capture the cost of those resources where
and when they are used.
Although OMB's concept of "full cost" initially included efforts to change
the budgetary measurement of certain items to better recognize costs in
the budget when resources are consumed, this effort has not been a primary
focus of reform efforts. Rather, reform efforts to date have focused on
changes in the structure of appropriations accounts or congressional
budget justifications and the distribution of resources within these
structures to more completely align budget resources with programs and
performance. As a result, these efforts are the primary focus of this
report.
In describing efforts to restructure budgets to better align budget
resources with performance, OMB and other agencies use terms such as "full
cost" and "total budgetary resources." In most but not all cases, these
terms are used to refer to the alignment of requested budget authority
with programs and performance within congressional budget justifications
or appropriations accounts. However, various users of performance, cost,
and budget information,18 including users across agencies, may interpret
"full cost" and "total budgetary resources" differently. Thus, for the
purposes of this report, we use the term "budgetary resources" generally
to describe the budget information within appropriations accounts and
congressional budget justifications that has been aligned to programs and
performance during restructuring efforts. When we use terms "full cost"
and "total budgetary resources" as used by OMB or the agencies or both, we
place them in quotations.
In this report "performance budget" refers to congressional budget
justifications that are structured around agency strategic and performance
goals and not to any process or approach in which resource allocation
decisions are being more generally linked to performance. We place the
term in quotations because different users may interpret "performance
budget" differently.
18 For example, in federal budgeting, "budgetary resources" refers to all
available budget authority given to an agency allowing it to incur
obligations. Budgetary authority includes appropriations, borrowing and
contract authority, and authority to obligate and expend offsetting
receipts and collections.
Page 36 GAO-05-117SP Performance Budgeting
Section 2: Variety of Efforts Undertaken to Restructure Budgets to Better Align
Budget Resources with Programs and Performance
2.1: OMB Recently Placed Greater Emphasis on Budget Restructuring
The Office of Management and Budget (OMB) has been discussing the need to
reexamine appropriations accounts within the last decade, and beginning
with the fiscal year 1999 budget, some agencies' efforts to better align
budget resources with programs and performance could be seen in the
budget. Recently, OMB has placed greater emphasis on budget restructuring
by including it as one effort in the Budget and Performance Integration
(BPI) initiative. OMB has also increased the focus on changing the
congressional budget justification by requiring agencies to submit
"performance budgets" to both OMB and Congress that integrate the
performance plan and congressional budget justification into one document.
The nine agencies we reviewed exemplify a variety of approaches taken,
differing in terms of the:
* specific budget structure affected (e.g., appropriations accounts,
program activities within the appropriations account structure, or
congressional budget justifications);
* o orientation or organizing framework used to restructure the
budget (e.g., strategic goals, bureaus, programs, etc.);
o level of performance (e.g., strategic goals, performance goals,
programs, etc.) for which budget resources were shown or budget
authority requested; and
o types of resources (e.g., central administration, Inspector General
(IG) offices, etc.) distributed within the performance-based budget
structure to reflect "full cost."
After discussing budget restructuring in the Analytical Perspectives for a
number of years, in 2001 OMB placed more emphasis on it by including it as
one of several efforts in the BPI initiative of The President's Management
Agenda (PMA). Then, in 2003, OMB required agencies to restructure their
congressional budget justifications creating a "performance budget" for
fiscal year 2005. During the same period, some agencies were also taking
steps to restructure their appropriations accounts or congressional budget
justifications to better align budget resources with programs and
performance. OMB staff told us that they saw budget restructuring as a
process that would evolve over time and that they had no single vision of
the right approach.
2.1a: OMB and Some Building on the statutory framework established in the
early 1990s, OMB and some agencies made concurrent efforts to restructure
budgets to
Agencies Made Concurrent
Efforts to Restructure better align budget resources with performance.
Figure 2 provides a time Budgets line of recent efforts by OMB and our
four case study agencies.
Figure 2: Time Line of OMB and Agency Efforts to Align Appropriations
Accounts and Congressional Budget Justifications with Performance
FY1995 FY1998 FY2000 FY2001 FY2002 FY2003 FY2004
Source: GAO analysis.
OMB's interest in budget restructuring did not originate with the PMA.
Over the last 10 years, OMB has discussed the need to "reexamine account
structures to better align them with program outputs and outcomes and to
charge the appropriate account with significant costs used to achieve
these results."1 More recently, OMB placed greater emphasis on budget
restructuring by including it as one effort in the BPI initiative of the
PMA that was issued in August 2001. Beginning with the Circular A-112 for
the fiscal year 2004 budget, OMB included guidance for agencies on ways to
restructure their congressional budget justifications and appropriations
accounts to better align budget resources with programs and performance.
OMB later required agencies to submit a "performance budget" to OMB and
Congress beginning with the fiscal year 2005 budget.
During the same period, some agencies were taking steps to restructure
their appropriations accounts or congressional budget justifications to
better align budget resources with programs and performance. Some case
study agencies began restructuring their budgets or thinking about ways to
better align the budget with performance before the PMA in 2001. For
example, beginning with its fiscal year 1999 budget, the Environmental
Protection Agency (EPA) made changes to the program activity listing
within its appropriations accounts and to its congressional budget
justification to better align budget resources with its strategic goals
and objectives. Beginning with its fiscal year 2002 budget, the National
Aeronautics and Space Administration (NASA) began taking steps toward
restructuring its appropriations accounts and congressional budget
justification and, for the fiscal year 2004 budget, requested budget
authority for the "full cost" of its programs.
Some officials reported that the Government Performance and Results Act
(GPRA) requirements and other results-oriented management initiatives,
such as the Federal Financial Management Improvement Act (FFMIA), led them
to think about ways to better incorporate a planning perspective into
budget decisions and capture the "full cost" of their programs and
activities. Officials from some agencies noted however that the PMA,
1 Office of Management and Budget, Analytical Perspectives, Budget of the
United States Government, Fiscal Year 1996 (Washington, D.C.: February
1995), p. 100. Similar discussions were included in the Analytical
Perspectives for the fiscal years 1997 through 2004 budgets as well.
2 Circular A-11 provides, among other things, guidance on how to
formulate, develop, and submit materials required for OMB and presidential
review of agency budget requests.
Page 39 GAO-05-117SP Performance Budgeting
2.1b: OMB Provides Budget Restructuring Guidance and Requires a
"Performance Budget"
which holds agencies publicly accountable for achieving goals of the
management initiatives, and OMB's recent "performance budget" requirements
provided greater incentives to move in this direction.
Beginning with the fiscal year 2005 budget, OMB required agencies to
submit a "performance budget" to OMB and Congress that would integrate an
agency's annual performance plan and congressional budget justification
into one document.3 The agency's strategic plan was to be the template for
the "performance budget." Agencies were instructed to provide an overview
of strategic goals, past and expected outcomes for each strategic goal,
how supporting programs would work together toward those goals, and how
past shortcomings would be remedied. Tables would show the "full cost"
paid by the agency toward each strategic goal and for each program. Each
bureau or other organization was instructed to analyze its contribution to
strategic goals followed by a detailed analysis of supporting programs.
OMB said agencies should consult with congressional committees before
submitting their budget to ensure Congress is aware of changes being made
to the budget structure.
OMB also provided guidance to agencies on ways to change their current
account structure to better align resources with programs and performance
in the budget. The Circular A-11 guidance for the fiscal years 2005 and
2006 budgets said, "where possible" agencies should restructure the budget
to align accounts and program activities with "programs or the components
of the programs that contribute to a single strategic goal or objective."4
In addition, the guidance for the fiscal years 2005 and 2006 budgets also
suggested that agencies align program activities with Program Assessment
Rating Tool (PART) programs. Agencies should also, where possible, include
the "full cost" of a program in the "performance budget."5
3 According to OMB, because the plan would be integrated into the
"performance budget," a separate annual performance plan would not be
needed to satisfy GPRA requirements.
4 OMB, Circular No. A-11: Preparation, Submission, and Execution of the
Budget (Washington, D.C.: July 2003), p. 51-3 and OMB, Circular No. A- 11:
Preparation, Submission, and Execution of the Budget (Washington, D.C.:
July 2004), p. 51-3.
5 OMB, Circular No. A-11 (July 2003), p. 51-3 and OMB, Circular No. A-11
(July 2004),
p. 51-3.
OMB described two ways in which agencies could restructure accounts to
better capture "full cost." The Circular A-11 said that in some cases
agencies might consider requesting budgetary resources to cover all direct
and indirect costs in the budget account or program activity that funds
the program. This might involve changing the program activities in the
program and financing (P&F) schedules or changing the appropriations
account structure or shifting resources between accounts. In other cases,
agencies might request budget authority for some support services in
central accounts; in these cases, OMB suggested including a table showing
the "full cost" of budget resources used by each program.
OMB defined "full cost" as "the sum of all budget resources used by an
agency to achieve program outputs."6 These resources were to include not
only traditional elements of costs, such as salaries and expenses,
procurement of goods and services, grants, and transfers but also the cost
of all support services and goods used and provided for centrally. In
addition, these resources were to include accruing retiree pension and
health benefits. OMB said that the "full costs" should be included in
restructured accounts or displayed in informational tables. As part of
these efforts, the administration proposed legislation that would change
the budgetary measurement to recognize the accruing cost of retiree
pension and health benefits in the budget. (See text box 1.) Congress,
however, did not pass this legislation and OMB dropped the discussion from
the Circular A-11.
6 OMB, Circular No. A-11 (July 2002), p. 221-5.
OMB Proposed Legislation to Change How Certain Costs Are Captured in the
Budget
The U.S. budget is a cash and obligation-based budget. An obligation
serves as the primary point of fiscal control in the budget process.
Obligational budgeting involves three stages: (1) Congress must enact
budget authority up front before government officials can obligate the
government to make cash outlays, (2) government officials incur
obligations (i.e., commit the government to make outlays) by entering into
legally binding agreements, and (3) outlays (cash disbursements) are made
to liquidate obligations. With limited exceptions,a budget authority,
obligations, outlays, and receipts are measured on a cash- or
cash-equivalent basis and the unified deficit or surplus-the key focus of
policy debate-represents the difference between cash receipts and cash
outlays in a given year. That is, receipts are recorded when received and
outlays are recorded when paid without regard to the period in which the
taxes and fees were assessed or the costs resulting in the outlay were
incurred.
The cash and obligation-based budget has several advantages, including
that the deficit (or surplus) closely approximates the cash borrowing
needs (or cash in excess of immediate needs) of the government and, in
most cases, costs are recognized at the time decisions are made to commit
the government to spending. However, OMB, GAO, and others have raised
concerns that, for certain items, the current budget does not recognize
the complete cost up front when decisions are made or provide policymakers
with comparable cost information.b
The budgetary focus on annual cash flows does not match the "full cost" of
an employee with the services the employee provides. For example, some
deferred compensation (e.g., some federal employee pensions and federal
retirees' earned health care benefits) is currently only recorded in the
federal budget when benefits are paid rather than when benefits are earned
by employees. Federal employees earn pension benefits while they are
working but receive pension benefits after they have stopped working. The
accruing cost of the pensions earned by current employees is part of the
costs of the goods and services they provide, but the budget does not
capture the full extent of these costs. Instead total budget outlays
include the cash payments made to current retirees. The failure to align
budget recognition with the consumption of resources can affect the
government's efforts to assess its performance by making it more difficult
to assess and compare the costs associated with a given level of
performance.
Also, some federal agencies acquire assets that generate hazardous
substances that the agency is required by law to clean up at the end of
the asset's operating life. Since the budget is primarily measured on a
cash basis, these costs are paid after the asset is acquired. Information
on the estimated cleanup costs is currently not included in the budget
when budgeting decisions are being made about such activities. As a
result, not only are the government's ultimate costs not fully recognized
at the time the commitment is made, these costs are not properly matched
with the provision of government goods and services.c
Capital is another area where the current budgetary treatment does not
match resource use with the provision of goods and services. By requiring
up-front budget authority for the asset's full cash purchase price, the
cash- and obligation-based budget importantly recognizes the complete cost
of capital assets and permits congressional control before the purchase is
made. However, this treatment does not match the cost of the use of the
asset with the provision of goods and services and performance. As a
result, the budget resources requested in a period may misstate the costs
of achieving performance in that period.
To better capture retiree costs in the budget, OMB proposed legislation
titled Budgeting and Managing for Results: Full Funding of Retiree Costs
Act of 2001. This legislation proposed to charge the employer's share of
the full accruing cost of retirement benefits to federal employers as they
are earned and each agency included the accrued cost in their fiscal year
2003 budget requests. Congress, however, did not pass this legislation.
The administration instead listed the accrued cost as a notational entry
to the P&F schedules of the President's fiscal year 2004 budget. In the
Analytical Perspectives for the fiscal year 2005 budget, OMB stated that
its proposals to include the "full cost" of accruing federal employee
retiree benefits in the budget should be reexamined and proposed to
continue working with Congress to address concerns.d
OMB has also discussed how to better consider the cost of capital assets
and environmental liabilities. In the Analytical Perspectives for the
fiscal year 2004 budget, OMB said that one way to show a more "uniform
annual cost for the use of capital" without changing current requirements
for up-front budget authority would be to create capital acquisition funds
(CAF).e To pay the up-front costs of new capital assets for an agency's
program accounts, the CAF would request budget authority to borrow from
the Treasury. The CAF would then charge the program account annually for a
share of the principal and interest and use those collections to repay
Treasury. This idea is still conceptual and would need studying.
Similarly, programs that generate hazardous waste could request budget
authority for the annually accruing cleanup costs and pay these amounts to
a designated fund.f
aOne exception is the treatment of credit programs for which budget
authority, obligations, and outlays for the estimated cost to the
government of a credit program are measured on an accrual basis. Certain
interest payments are also measured on an accrual basis.
bSee, for example, GAO, Accrual Budgeting: Experiences of Other Nations
and Implications for the United States, GAO/AIMD-00-57 (Washington, D.C.:
Feb. 18, 2000); Long-Term Commitments: Improving the Budgetary Focus on
Environmental Liabilities, GAO-03-219 (Washington, D.C.: Jan. 24, 2003);
and Fiscal Exposures: Improving the Budgetary Focus on Long-Term Costs and
Uncertainties, GAO-03-213 (Washington, D.C.: Jan. 24, 2003).
cFor more information, see GAO-03-219, p. 2.
dThe 2005 budget included a limited proposal that would permit the Patent
and Trademark Office to use fees it collects to cover the current accruing
cost of postretirement annuities and health and life insurance benefits.
eOffice of Management and Budget, Analytical Perspectives, Budget of the
U.S. Government, Fiscal Year 2004 (Washington, D.C.: February 2003), p.
13.
fThis was one of several approaches discussed in GAO-03-219 .
In discussing appropriations account restructuring efforts, OMB staff said
that although it is beneficial to align the appropriations account
structure to give program managers authority over the budget resources
needed to achieve results, there are other factors to consider, and
restructuring is not always necessary. OMB staff recognized that
appropriations account structure changes must be negotiated with Congress
and that each agency's account structure may reflect the agency's
programmatic and performance frameworks and organizational structure. For
example, some agencies' strategic goals may be more program-specific while
others may be more crosscutting and supported by multiple programs. Given
these differences, appropriations account structure and activity alignment
should be "considered with care."7 OMB said there often is a good
managerial reason for bureaus or offices to be funded by more than one
appropriations account but that "multiple small accounts for similar
purposes are usually unnecessary,"8 and that appropriations accounts
should be consolidated or modified when the current structure inhibits
good management. An OMB staff person said appropriations account
structures that lack incentives to manage more effectively and do not
allow managers the flexibility to make resource trade-offs might provide
barriers to achieving goals.
7 Office of Management and Budget, Analytical Perspectives, Budget of the
United States Government, Fiscal Year 2003 (Washington, D.C.: February
2002), p. 10.
8 Office of Management and Budget, Analytical Perspectives, Budget of the
United States Government, Fiscal Year 2003 (Washington, D.C.: February
2002), p. 10.
Page 43 GAO-05-117SP Performance Budgeting
2.2: Agencies Took Differing Approaches to Restructure Budgets to Better
Align Resources with Programs and Performance
Agencies took differing approaches to restructuring budgets to better
align budget resources with programs and performance. Some agencies
proposed changing their appropriations account structure or the program
activities within that structure while others made changes solely to their
congressional budget justification. Some agencies also sought
corresponding changes to their transfer authority and reprogramming
guidelines. In addition, the orientation or organizational frameworks for
restructured budgets varied both among and within agencies. Further,
agencies showed or requested budget resources for the "full cost" of
various levels of performance-such as strategic goals, performance goals,
and programs-and the types of resources agencies allocated within the
performance-based budget structure varied. As discussed in section 3,
understanding an agency's particular approach is important because
different approaches provide different information and incentives to the
users of the budget. As a result, these approaches have potentially
different implications for the management and oversight of budget
resources.
2.2a: Agencies Differed on Whether They Changed Their Appropriations
Account Structure, Congressional Budget Justification, or Both
Some agencies proposed changing the appropriations account structure9 or
the program activities within their accounts while others made changes
solely to their congressional budget justification. Table 4 highlights
where changes were made or proposed by all nine agencies in our study and
that the budget structure affected varied.10
9 Congress, specifically the appropriations committees, establishes
appropriations accounts to facilitate congressional allocation and
oversight responsibilities. The President's budget generally reflects
these appropriations account structures but the executive branch may
propose changes to the structure.
10 For a fuller description of the approaches taken by our case study
agencies, see apps. II thru V.
Page 44 GAO-05-117SP Performance Budgeting
Table 4: Where Agencies Made or Proposed Changes to Better Align Budget
Resources with Programs and Performance
VA NASA DOJ EPA SBA COMMERCE HUD LABOR DOT
Changes to Changes to X X X X X X a a
appropriations accounts
account Changes within X X b
structure accounts to
program
activities
Changes to congressional X X X X X X Xc X X
budget justification
Source: GAO analysis.
aSome bureaus within the Department of Transportation (DOT) made or
proposed changes to their account structure and program activities within
accounts to better align with performance, but DOT as a whole did not
restructure its budget accounts.
bThe Pension Benefit Guaranty Corporation and the Employment and Training
Administration made or proposed changes to the program activities within
their appropriations accounts, but according to Department of Labor
(Labor) officials these changes reflect policy changes. Labor as a whole
did not restructure its appropriations accounts to better align resources
with programs and performance.
cFor the fiscal year 2004 budget only. The House Appropriations Committee
directed the Department of Housing and Urban Development (HUD) not to
submit a "performance budget" for fiscal year 2005 and consequently, HUD
did not resubmit a "performance budget" for fiscal year 2005.
Changes to Appropriations Account Structure
Three agencies in our study-NASA, VA, and the Department of Justice
(DOJ)-proposed agencywide appropriations account structure changes to
better align budget resources with performance.11 These agencies also made
corresponding changes to the program activity listing within their
appropriations accounts and congressional budget justifications. NASA, for
example, proposed to eliminate its mission support appropriations account
that funded, among other things, construction projects, personnel expenses
for NASA's civil service workforce, and its central administrative
functions. VA and DOJ also proposed to eliminate appropriations accounts
funding construction but chose to maintain separate appropriations
accounts for departmental administration.
11 While some agencies did not propose agencywide appropriations account
structure changes, some bureaus within such agencies proposed changes in
part reflecting broader policy or authorizing language changes. For
example, two bureaus within DOT-the Federal Transit Administration (FTA)
and the Federal Motor Carrier Safety Administration (FMCSA)-proposed
appropriations account structure changes to more closely align budget
resources with performance and to reflect the administration's proposals
to consolidate various programs. Congress did not accept FTA or FMCSA's
proposed appropriations account structure for either fiscal year 2004 or
fiscal year 2005.
The following description of VA's proposed changes illustrates how these
proposed appropriations account structure changes looked. VA proposed to
consolidate resources from multiple accounts and split some appropriations
accounts among multiple programs. In VA's enacted appropriations account
structure for fiscal year 2003, each of VA's programs was funded by
multiple appropriations accounts. Figure 3 shows that the Medical Care
program was funded by five appropriations accounts in fiscal year 2003.
Under VA's proposed account structure for fiscal year 2004, resources from
these five appropriations accounts would have been consolidated into one
appropriations account called Medical Care.12
Figure 3: Appropriations Accounts Funding the Medical Care Program under
VA's Fiscal Year 2003 Enacted and Fiscal Year 2004 Proposed Appropriations
Account Structure
Source: GAO analysis.
a Portions of these accounts were allocated to other program accounts.
Some of VA's accounts, such as Major Construction or General Operating
Expenses (GOE), provided resources associated with multiple programs. VA
proposed that these accounts be disaggregated and the resources allocated
to the programs they support. Figure 4 illustrates this for the
12 See app. III for a fuller comparison of VA's current and proposed
account structure.
GOE account, which funded the Veterans Benefit Administration (VBA)
program administration for seven programs and general administration. VA
proposed to disaggregate this account and allocate the resources to eight
different appropriations accounts. Similarly, VA proposed to eliminate its
Construction accounts and allocate those resources among program accounts.
Figure 4: Appropriations Accounts Funding General Operating Expenses under
VA's Fiscal Year 2003 Enacted and Fiscal Year 2004 Proposed Appropriations
Account Structure
Source: GAO analysis.
In addition to VA, NASA and DOJ also proposed to eliminate appropriations
accounts that funded construction projects. However, the extent to which
resources for construction remained visible in the proposed appropriations
account structure differed. VA showed the resources for construction as a
separate, identifiable program activity line in the P&F schedule of the
President's Budget Appendix. In contrast, NASA and DOJ's construction
resources were allocated to program activities within appropriations
accounts and thus were not separately identified within the appropriations
accounts.13
Of these three agencies, the appropriations account structure for only one
agency changed. An agency cannot change its appropriations account
structure on its own because appropriations accounts are established by
law. Thus, agencies' appropriations account structure proposals must be
enacted by Congress to take effect. Congress appropriated funds for NASA
under its proposed account structure beginning with the fiscal year 2002
budget. However, for the most part, Congress did not accept VA and DOJ's
proposed appropriations account structure changes for either fiscal year
2004 or 2005.14
Changes to Program Activity Listing
Two other agencies in our study-EPA and the Small Business Administration
(SBA)-did not change their appropriations account structures but rather
made changes within appropriations accounts to the program activity
listing in the P&F schedule. Both EPA and SBA also made changes to their
congressional budget justifications to better align budget resources with
performance. Beginning with the fiscal year 1999 budget, EPA changed the
program activities within its appropriations accounts from programmatic
areas (e.g., Pesticides, Radiation) and individual items of expense (e.g.,
Regional Management) to strategic goals such as Clean Air and Clean Water
(see table 5). For the fiscal year 2005 budget, EPA consolidated the
number of program activities to reflect changes to its strategic plan,
which reduced the number of strategic goals from 10 to 5. Importantly,
since a strategic goal might have been supported through multiple
appropriations accounts, the amount shown for a strategic goal in any one
appropriations account did not necessarily represent the total budget
resources associated with that goal.
13 For the fiscal years 2004 and 2005 budgets, NASA's program activities
reflect its enterprises, or main programmatic units such as Space Science,
Earth Science, and Biological and Physical Research. DOJ's program
activities generally reflected its programs, activities, or "decision
units" - major program activities that better align with DOJ's mission and
strategic objectives. For example, within the Federal Bureau of
Investigation's Salaries and Expense account, the program activities
include National Security, Counterterrorism, Criminal Enterprises and
Federal Crimes, and Criminal Justice Services.
14 For fiscal year 2005, Congress approved the proposed account structure
for DOJ's Drug Enforcement Agency to merge construction and salaries and
expenses (S&E) accounts.
Table 5: Program Activity Listing for EPA's Environmental Programs and
Management Appropriations Account (Fiscal Years 1998, 1999, and 2005
Budgets)
Fiscal year 1998 budget Fiscal year 1999 budget Fiscal year 2005 budget
Program activities: Program activities: Program activities:
Clean Air and Global
Air Clean Air Climate Change
Water Quality Clean Water Clean and Safe Water
Drinking Water Safe Food Land Preservation and
Restoration
Hazardous Waste Preventing Pollution Healthy Communities and
Ecosystems
Pesticides Waste Management Compliance and
Environmental Stewardship
Radiation Global and Cross-border Reimbursable programa
Multimedia Right to Know
Toxic Substances Sound Science
Mission and Policy Credible Deterrent
Management
Agency Management Effective Management
Regional Management
Support Costs
Superfund
Source: President's Budget Appendix for EPA for fiscal years 1998, 1999,
and 2005.
aThis program activity is not a strategic goal.
In the fiscal years 2004 and 2005 budgets, SBA maintained its programmatic
and functional program activities but eliminated one program activity
called "administrative expenses" and allocated those resources to the
other program activities within that appropriations account. One bureau in
DOT, the Federal Aviation Administration (FAA) also made changes to its
program activity listing without changing its appropriations account
structure. FAA changed the program activities under two appropriations
accounts-(1) Facilities and Equipment and (2) Research, Engineering, and
Development-to describe FAA's performance goals.
Changes to Congressional Budget Justifications
While every agency in our study restructured its congressional budget
justification to better align budget resources with programs and
performance, four of the nine agencies did not make corresponding
agencywide changes to or within their appropriations account structures.
As shown in table 4, four of the nine agencies for the most part
maintained their existing account structure and program activity listing
and made agencywide changes only to their congressional budget
justifications. 15 These agencies-the Department of Commerce (Commerce),
HUD, Labor, and DOT-maintained appropriations accounts that generally
reflected a mix of orientations-object, organization, process, and
program-and embedded additional information on the "full cost" of programs
and performance within their congressional budget justifications.
In most of the selected agencies, the organizing framework of the
congressional budget justification followed the appropriations account
structure; however, three agencies in our study used organizing frameworks
for their congressional budget justification that did not match their
appropriations account structures. EPA, SBA, and HUD each maintained their
previously established appropriations accounts, which generally reflected
a mix of orientations, but restructured their congressional budget
justifications around strategic goals.16 For example, as shown in table 6,
EPA's fiscal year 2005 appropriations account structure and congressional
budget justification were organized differently. EPA had five
appropriations accounts, including Environmental Programs and Management
and State and Tribal Assistance Grants. However, EPA's fiscal year 2005
congressional budget justification was organized by strategic goal. The
congressional budget justification included chapters for Clean Air and
Global Climate Change and Clean and Safe Water followed by information for
strategic objectives and programs. While it was easier to see the
resources associated with strategic goals and objectives in the
congressional budget justification, it was correspondingly more difficult
to see the resources associated with each appropriations account because
any one strategic goal, strategic objective, or program might have been
funded by multiple appropriations accounts. EPA provided crosswalk
15 As noted in table 4, certain bureaus within Labor and DOT made changes
to their appropriations account structures or the program activities
within the accounts; however neither Labor nor DOT made agencywide changes
to its appropriations account structure.
16 While SBA lists resources by appropriations account in its
congressional budget justification, the program descriptions are included
in the performance plan section of the congressional budget justification
that is organized by strategic goal. For fiscal year 2004, HUD submitted
two congressional budget justifications-one in the previously established
program-based structure and the other in a performance-based structure.
Our analysis focuses on the performance-based congressional budget
justification because HUD did not resubmit a performance-based
justification for fiscal year 2005.
2.2b: Agencies Showed or Requested "Full Cost" of Different Levels of
Performance
tables showing the relationship between appropriations account, strategic
goals, and programs as supplemental information.17
Table 6: Comparison of EPA's Appropriations Account Structure and
Organizing Framework for Its Fiscal Year 2005 Congressional Budget
Justification
2005 Annual Performance Plan and
Congressional Justification
2005 Appropriations Accounts Table of Contents
Environmental Programs and Management Introduction and Overview
Science and Technology Resource Tables
State and Tribal Assistance Grants Goal 1: Clean Air and Global Climate
Change
Building and Facilities Goal 2: Clean and Safe Water
Office of Inspector General Goal 3: Land Preservation and
Restoration
Goal 4: Healthy Communities and
Ecosystems
Goal 5: Compliance and Environmental
Stewardship
Enabling/Support Programs
Annual Performance Goals and
Measures
Special Analysis
Source: GAO analysis.
As illustrated in table 7, agencies showed or requested budget resources
for the "full cost" of programs or different levels of performance in
their congressional budget justifications. Most agencies in our review
aligned budget resources with programs or collections of programs that
support common strategic goals. For example, VA aligned budget resources
with each of its nine "business lines," or main programmatic areas, such
as Medical Care. The lowest level to which NASA aligned budget resources
was programs, such as Flight Hardware and Ground Operations, within a
17 This refers to changes made up through EPA's fiscal year 2005 budget
justification. For fiscal year 2006, EPA restructured its budget
justification so that it was organized by appropriations account and
program/project. Information on strategic goals and objectives and the
resources associated with them was provided as a supplement.
Page 51 GAO-05-117SP Performance Budgeting
"theme" such as the Space Shuttle.18 Four agencies (EPA, SBA, HUD, and
DOT) aligned budget resources with strategic goals or objectives or both.
Three agencies (Commerce, Labor, and DOT) aligned budget resources with
performance goals.
Table 7: Level of Program or Performance to Which Agencies Showed or
Requested "Full Cost" in Congressional Budget Justifications
Program or Performance Level VA NASA DOJ EPA SBA COMMERCE HUDa LABOR DOT
Strategic goal X X X X X X X
Strategic objective X X
Performance goal X X X
Collection of programs (themes, decision units) Program X X X X X X Xb X
Source: GAO analysis.
Note: Shaded area denotes the performance level for which agency is
proposing budget authority be appropriated in the restructured framework.
See discussion following this table.
aFor fiscal year 2004, HUD submitted two congressional budget
justifications-one in the previously established program-based structure
and the other in a new performance-based structure. Our analysis focuses
on the performance-based justification. HUD did not resubmit a
"performance budget" for fiscal year 2005.
b"Full cost" was not shown in cases where a program supports more than one
strategic goal.
While some changes or proposed changes sought to modify the way resources
are appropriated and thus the framework for resources trade-offs, other
changes sought to provide additional information on the connection between
budget resources and programs and performance for presentational purposes.
The three agencies proposing appropriations account structure
changes-NASA, VA, and DOJ-requested that budget authority be appropriated
to cover the "full cost" of programs or collections of programs that
support common goals. (The program levels for which NASA, VA, and DOJ have
requested that funds be appropriated in the new
18 Themes were a key organizational unit in NASA's fiscal year 2004 and
fiscal year 2005 congressional budget justifications. However, during
fiscal year 2004 (following the fiscal year 2005 budget submission), NASA
fundamentally restructured its organization to position it to better
implement the vision set forth in A Renewed Spirit of Discovery, The
President's Vision for U.S. Space Exploration (National Aeronautics and
Space Administration, February 2004). NASA's fiscal year 2006
congressional budget justification reflected its new organizational
framework.
framework are shown as shaded cells in table 7.) The remaining six
agencies restructured their congressional budget justifications to
generally reframe their budget request around the "full cost" of
performance or to provide supplemental crosswalk tables to show the "full
cost" or "total budgetary resources" of performance units for
presentational purposes.
Table 8 shows one such table from Labor's fiscal year 2005 congressional
budget justification. Beginning with the fiscal year 2004 congressional
budget justification, for example, Labor showed the "total budgetary
resources" (both direct and indirect costs) associated with strategic
goals, programs, and related performance goals. Prior to restructuring its
budget, Labor showed only the direct resources associated with its
programs. Currently, as shown in table 8, Labor presents program budget
requests together with the administrative resources and full-time
equivalents (FTEs) related to the program. Importantly, resources included
in the "Program Admin" row are appropriated in a different appropriations
account than the other Job Corp program resources and are also presented
elsewhere in the congressional budget justification.
Table 8: Resource Table Presented in Labor's Fiscal Year 2005
Congressional Budget Justification for Job Corps
Fiscal year Dollars in thousands Fiscal year 2005 Difference
fiscal
2004 estimate year 04/05
Job Corps $1,557,287 $20,213
Program Admin. $28,670 $1,537,074 $29,496 $826
appropriation
Reimbursables $4,000 $4,000 $0
Total resources $1,569,744 $1,590,783 $21,039
FTE 187 187 0
Source: Department of Labor's Fiscal Year 2005 Budget Justification of
Appropriations Estimates for Committee on Appropriations, Volume 1.
DOT provided supplemental crosswalk tables illustrating the links between
the department's budget request and its six strategic goals. Figure 5 is
an excerpt from DOT's fiscal year 2005 budget justification.
Figure 5: Supplemental Table from DOT's Congressional Budget Justification
BUDGETARY RESOURCES BY STRATEGIC AND ORGANIZATIONAL GOALS (Dollars in
Millions)
FY 2005 Request
EnvironmentalStewardshipSecurity Organizational
y
ectivit
Excellence
Mobility
Operating AdministrationTotal
Safety
Federal Aviation Administration 13,965.8 8,815.8 3,946.1 45.3 571.6 159.6
427.5 Federal Highway Administration 34,477.9 4,142.1 26,262.2 178.2
3,796.9 62.9 35.6 Federal Motor Carrier Safety Administration 455.3 414.1
4.4 0.0 0.0 7.8 29.0 National Highway Traffic Safety Administration 689.3
687.1 0.0 0.2 2.0 0.0 0.0
Federal Transit Administration 7,266.1 15.8 6,949.5 0.9 236.8 37.7 25.4
Federal Railroad Administration 1,088.0 179.5 904.2 0.0 0.7 0.7 3.0
Research and Special Programs Administration 137.3 103.4 0.0 0.0 22.5 5.6
5.8 Maritime Administration 234.3 0.0 7.4 2.8 22.1 201.3 0.8 St. Lawrence
Seaway Development Corporation 16.0 0.0 0.0 15.7 0.0 0.3 0.0 Office of the
Inspector General 59.0 0.0 0.0 0.0 0.0 0.0 59.0 Surface Transportation
Board 21.0 0.0 10.5 0.0 0.0 0.0 10.5 Bureau of Transportation Statistics
[32.3] [2.7] [9.1] [ 14.1] 0.0 0.0 [6.4] Office of the Secretary336.1 3.2
50.0 29.7 1.6 9.0 242.6
TOTAL, Department of Transportation 58,746.2 14,361.0 38,134.2 272.7
4,654.2 484.8 839.2
Share of Total DOT Budgetary Resources 100.0% 24.4% 64.9% 0.5% 7.9% 0.8%
1.4%
GlobalConn
Source: DOT.
2.2c: Agencies Allocated Different Types of Resources to Performance
While the agencies included in our study all took steps to more completely
capture the "full cost" of programs and performance, the types of
resources agencies allocated to programs and performance units varied. In
particular, the treatment of central administrative resources and IG
office resources differed. For example, EPA allocated its total budget
request, including the IG's office, to strategic goals and objectives.
Other agencies did not allocate all resources to programs and performance.
NASA, for example, did not allocate resources from the IG's office; it
did, however, allocate all other direct and indirect resources including
procurement, civil servants, the program's share of service pool
resources, and portions of administrative resources from its field offices
and headquarter offices. Similarly, SBA allocated most central
administrative resources to its programs and goals but did not allocate
the IG's office. Labor allocated some central administrative (i.e.,
departmental) resources including legal services and some information
technology resources but did not allocate all central administrative
resources, such as the Office of the Secretary or the Office of the Chief
Financial Officer, to programs and performance. Commerce, HUD, and DOT
allocated most central administrative resources
2.2d: Some Agencies Sought Corresponding Changes to Transfer or
Reprogramming Guidelines or Both
to a separate management goal. EPA did this as well in its fiscal year
2004 congressional budget justification. However, in its fiscal year 2005
budget, its management goal was eliminated and central administrative
resources were allocated to its five mission-related strategic goals. VA
and DOJ did not allocate central administrative (i.e., departmental)
resources. The lack of consistency in what is included in "full cost" or
"total budgetary resources" has the potential to complicate the
understanding of what is meant by "full cost" and "total budgetary
resources."
Some agencies also sought corresponding changes to methods by which
Congress oversees resource use, including their transfer authority or
reprogramming guidelines or both. Providing transfer authority, or the
ability to shift all or part of the budget authority provided in one
appropriations account to another, provides agencies greater flexibility
because transferring funds between accounts is prohibited by law. For
example, after NASA's Mission Support appropriations account was
eliminated and those resources were allocated to its two mission-related
appropriations accounts in fiscal year 2002, NASA received authority to
transfer funds as necessary for administrative resources, including
federal salaries and benefits, training, travel, and facilities, between
its two mission-related accounts.19 VA also sought transfer authority when
proposing account structure changes for the fiscal years 2004 and 2005
budgets. Specifically, VA requested transfer authority for operations and
construction expenses among different business line accounts.
Appropriators did not accept VA's proposed account structure and so did
not provide VA this authority.
While a transfer of funds involves shifting funds from one appropriations
account to another, reprogramming involves shifting funds within an
appropriations account to use for different purposes than those
contemplated at the time of appropriation. Agencies are implicitly
authorized to reprogram funds as part of their general responsibility to
manage funds. Sometimes committee oversight of reprogramming is prescribed
by statute requiring that the agencies either notify or consult with the
appropriate congressional committees when reprogramming funds that have
certain program impacts or are above a certain threshold. Guidelines also
may include what types of reprogramming are allowable
19 National Aeronautics and Space Act of 1958 (Pub. Law 85-568) as amended
by Pub. Law 106-377, 114 Stat 1441, 1441A-57 (2000).
Page 55 GAO-05-117SP Performance Budgeting
without notifying or consulting with the committee. For example,
reprogramming may be expressly permitted among programs, activities, or
object classes under certain dollar thresholds. For the fiscal year 2004
budget, NASA requested that appropriations committees change its
reprogramming guidelines to allow reprogramming within a theme (a
collection of programs and projects that support a common strategic goal).
NASA also sought to increase its reprogramming threshold to $10 million.20
Congress accepted neither change. When EPA made its budget changes for the
fiscal year 1999 budget, its reprogramming dollar threshold remained the
same but Congress changed EPA's reprogramming guidance to allow funding
shifts within broad strategic objectives, such as Healthier Outdoor Air.
Prior to restructuring, EPA's reprogramming guidance only allowed shifting
funds within specific program elements, such as Air Quality Planning and
Standards and Air Quality Management Implementation. Section 3 discusses
how changes or lack thereof to an agency's transfer authority and
reprogramming guidelines will influence how and to what extent budget
structure changes might change resource management and oversight.
20 For fiscal year 2004, the House Appropriations Committee allowed
reprogrammings between programs, activities, object classifications, and
elements up to $500,000 without notifying the committee. The Senate
Appropriations Committee allowed reprogrammings among programs,
activities, and elements only up to $250,000.
Page 56 GAO-05-117SP Performance Budgeting
Section 3: Restructuring Budgets May Help Reframe Budget Choices and Raises
Tradeoffs Among Different Decision Makers' Needs
Different approaches to restructuring budgets provide different
information and create different incentives and ultimately have different
implications for management and oversight of budget resources.
Understanding the specific approach used by an agency, what issues the
approach raises, and what might be achieved is important to evaluate the
impact on resource management and oversight. In addition, restructuring
budgets should not be considered in isolation but rather in the context of
any other changes occurring to the methods or structures for congressional
and agency resource management and oversight. In this report, the specific
approach of one agency may be used to illustrate a number of different
issues that can arise.
Our work revealed differing views on the potential benefits and
shortcomings of restructuring budgets to better align budget resources
with programs and performance. These differing views reflect the
multiplicity of roles, perspectives, and needs of Congress, OMB, and
different levels of agency management. OMB and agency officials credited
changes in appropriations accounts and congressional budget justifications
with supporting results-oriented management. However, budget changes did
not meet the needs of some executive branch managers and congressional
appropriations committees, leading some to raise a number of issues. For
example, officials from two case study agencies said budget restructuring
had the potential to create new resource management challenges. And
although some appropriations committee reports and subcommittee staff we
spoke with expressed general support for budget and performance
integration efforts, almost all appropriations subcommittee staff we spoke
with said that the organizational frameworks used to restructure budgets
did not meet their needs.
Agency officials' views differed on whether appropriations account
structure changes were necessary to advance results-oriented management.
It is not practical for a single reform to address all possible budget
decision makers' needs. Therefore, understanding what realistically can be
expected from any particular effort and how various efforts fit together
is necessary to permit judgments about whether, how, and to what extent
the budget might be restructured given limited resources.
Section 3: Restructuring Budgets May Help Reframe Budget Choices and Raises
Tradeoffs Among Different Decision Makers' Needs
3.1: Restructuring Appropriations Accounts and Congressional Budget
Justifications Has the Potential to Help Reframe Budget Choices
The structure of appropriations accounts and congressional budget
justifications reflects fundamental choices about how resource allocation
choices are framed and the types of controls and incentives considered
most important. Different budget structures frame budget choices
differently and affect the range of possible resource trade-offs. For
example, budgets could be structured to focus on individual items of
expenses (e.g., program administration or construction), on individual
programs, or on an agency's broader strategic and performance framework. A
budget structure in which a single appropriations account funds total
administrative costs-administrative costs for a number of programs are
contained in one account-may increase the focus of congressional decision
making and oversight on the costs of administering programs but make it
difficult to see the "full cost" of the associated programs. During budget
execution, such an account may allow managers to shift administrative
resources among different programs to meet needs. Alternatively, a budget
structure in which a single appropriations account contains the total
resources associated with a program-funding the "full cost" of a program
in one appropriations account, including direct and indirect resources
such as administration or construction-might increase the focus on
programs; however, information on individual items of expense might be
obscured in such a budget structure. Such an account could allow
trade-offs among different items of expense within a program during budget
execution, but it would hinder the ability of managers to shift
administrative resources across programs. By changing the information and
incentives provided, restructuring budgets has the potential to change
both the nature of resource management and oversight and the information
readily transparent and available in the budget. This means budget
restructuring represents more than structural or technical changes and
involves important trade-offs among different perspectives and needs of
Congress and executive branch agencies. Not surprisingly, the perceived
benefits and shortcomings of various approaches are likely to vary based
on the role and perspectives of particular budget decision makers as well
as the nature of the programs in question.
3.1a: Recent Budget Restructuring Efforts Have Sought to Help Reframe
Budget Choices
Recent efforts to restructure budgets have sought to help reframe budget
choices to establish clearer and closer associations between expected
performance and budget resources and to focus decisions more on the
expected results associated with budget resources and less on inputs or
line items. OMB has suggested that restructured "performance budgets,"
with the strategic plan serving as the template, should frame budget
Page 58 GAO-05-117SP Performance Budgeting Section 3: Restructuring
Budgets May Help Reframe Budget Choices and Raises Tradeoffs Among
Different Decision Makers' Needs
requests around what agencies intend to accomplish with the resources
requested.
Appropriations account structure and congressional budget justification
changes made or proposed by our case study agencies help illustrate how
budget restructuring might help reframe budget choices and so change the
nature of resource management and oversight. In some cases, agencies
restructured the budget to reduce the focus on individual items of expense
and instead sought to focus on program resources as a whole. For example,
NASA proposed and Congress agreed to eliminate its mission support
appropriations account and to allocate those resources across programs.
While information on construction, personnel, and travel resources are
provided as supplementary information in the congressional budget
justification, these resources are no longer separately appropriated and
are no longer intended to be the focus of NASA's budget request. Rather,
resources for mission support are included in program budgets to better
reflect the "full cost" of programs.
Similarly, VA's proposed appropriations account structure for fiscal years
2004 and 2005 would have also helped reframe budget choices and change the
nature of resource allocation, management and oversight. VA's fiscal year
2004 appropriations account structure included accounts for direct
benefits, construction, grants, and program administration. VA officials
sought to provide Congress with more information on total program
resources, thereby shifting the resource debate from inputs to outcomes
and results. In doing so, VA would go from the current structure, under
which trade-offs generally are made between similar types of spending
among programs, to one in which trade-offs would be made across all types
of spending within a program. Today if a minor construction project costs
more than anticipated or a new need arises, managers might make trade-offs
among other construction projects by, for example, deferring another
construction project. Similarly, a larger than anticipated utility bill
might defer other operating expenses. Under the proposed change,
construction, grants, and program administration appropriations accounts
would be eliminated and those resources allocated among program
appropriations accounts. Under the proposed structure, resource trade-offs
would be focused within a program and managers might, for example, defer a
new
Section 3: Restructuring Budgets May Help Reframe Budget Choices and Raises
Tradeoffs Among Different Decision Makers' Needs
3.1b: When Reframing Budget Choices, Some Information May Be Less
Transparent or No Longer Included
minor construction project to cover increased operating expenses, once
appropriate reprogramming requests were processed.1
When changing budget structures to better align budget resources with
programs and performance, the total resources associated with programs and
performance may be more visible. However, information that had previously
been readily transparent in either the appropriations account structure or
congressional budget justification may be less transparent or no longer
included. As the focus on programs or how programs fit together to support
the agency's strategic and performance framework is increased, information
on individual items of expense may become less apparent. In moving toward
the theme-based budget structure, for example, NASA provided more
information on how programs and resources fit together to achieve goals,
but provided less detail about its individual programs. In the fiscal year
2003 congressional budget justification, the distribution of the Space
Shuttle resources among the various programs within that theme, such as
Flight Hardware and Program Integration, was visible.2 Further, beneath
these programs, NASA provided information on program elements. For
example, for Flight Hardware, NASA showed the resources requested for
external tank production, main engine production, and main engine test
support. These program elements and the associated resources are not
visible in either the fiscal year 2004 or 2005 congressional budget
justifications.
VA provides another example. For the fiscal years 2004 and 2005 budgets,
as noted, VA proposed eliminating construction, grants, and program
administration appropriations accounts and allocating these resources
among program appropriations accounts. While one objective was to make the
budget resources associated with programs more readily apparent, some
previously reported information was either less transparent or not
included in the fiscal year 2004 and fiscal year 2005 budgets. For
example,
1
Proposed appropriations language would limit the extent to which VA
managers could make trade-offs among cost components. For more
information, see app. III.
2 Themes were a key organizational unit in NASA's fiscal year 2004 and
2005 budget justifications. However, during fiscal year 2004 (following
the fiscal year 2005 budget submission), NASA fundamentally restructured
its organization to position it to better implement the vision set forth
in A Renewed Spirit of Discovery, The President's Vision for
U.S. Space Exploration (National Aeronautics and Space Administration,
February 2004). NASA's fiscal year 2006 budget justification will reflect
its new organizational framework.
Section 3: Restructuring Budgets May Help Reframe Budget Choices and
Raises Tradeoffs Among Different Decision Makers' Needs
we found that total resources requested for construction were less
transparent in the fiscal years 2004 and 2005 budgets than in the fiscal
year 2003 budget. In fiscal year 2003, total construction for VA was
appropriated in two accounts-Construction, Major and Construction,
Minor-and was shown in a separate volume of the congressional budget
justifications. In both fiscal years 2004 and 2005, total construction
resources were allocated among eight of VA's nine major programs and to
Departmental Administration and the Inspector General.3 Further, VA no
longer provided a separate volume for Construction in its congressional
budget justification.
Different budget structures may focus attention on direct resources or on
all the budget resources-both direct and indirect-associated with
programs. For example, while NASA's new structure provides more complete
information on budget resources associated with programs, the direct and
indirect cost components are not clearly delineated, making it harder to
distinguish between them. In contrast, NASA's old congressional budget
justification format included only direct procurement costs in program
budgets. This format did not represent all the resources associated with
operating the programs, but budget decision makers could clearly see
direct program resources. Similarly, while EPA's fiscal year 1998
congressional budget justification showed the direct resources for
programs, the restructured congressional budget justification for fiscal
years 2004 and 2005 showed more completely the resources associated with
programs, including office-level administrative resources. While
centralized administrative resources are clearly delineated from direct
program resources, the office-level administrative resources are not.
3 VA did not allocate construction resources to the Medical Research
budget.
Section 3: Restructuring Budgets May Help Reframe Budget Choices and Raises
Tradeoffs Among Different Decision Makers' Needs
3.2: Approach Used and Corresponding Changes Affect the Extent to Which
Budget Restructuring May Influence Management and Oversight
As described in section 2, agencies took a variety of approaches. Each
approach has different potential implications for resource management and
oversight. Appropriations account structure changes, which change the
statutory control over resources, are more likely to change management and
oversight than changes to congressional budget justifications. In either
case a complete view of the implications for resource management and
oversight requires looking at other elements of resource control, such as
reprogramming and transfer rules.
3.2a: Appropriations Account Structure Changes Generally Have More
Far-Reaching Implications for Management and Oversight than Changes to
Program Activities or Congressional Budget Justifications Alone
Restructuring appropriations accounts changes the statutory framework for
appropriating and overseeing funds. Appropriations accounts are
established by law to facilitate congressional resource allocation and
oversight responsibilities. Appropriations accounts generally restrict
obligations to a specific amount, purpose, and time availability. Changing
the appropriations account structure changes the legal framework governing
the availability and use of federal funds, and thus a central aspect of
congressional oversight.
Some of the appropriations account structure changes proposed by agencies
in our study would change the way Congress has traditionally appropriated
funds and potentially give managers more flexibility over some resources.
Two of our case study agencies (NASA and VA) and one agency included in
our general review (DOJ) made or proposed agencywide changes to their
appropriations account structures. NASA's appropriations accounts were
consolidated and its mission support account was eliminated. NASA's
resources for mission support are now funded through two mission-related
appropriations accounts. Under this new structure, NASA managers have more
flexibility to make trade-offs among budget resources for procurement,
facilities, or general administration without requiring transfer
authority. Managers at VA and DOJ, which both proposed eliminating
appropriations accounts funding construction and funding construction
projects through program appropriations accounts, could also gain some
flexibility if Congress enacted the proposed account structures.
Changing solely the program activity listing or congressional budget
justification may not change the framework for resource management and
Section 3: Restructuring Budgets May Help Reframe Budget Choices and Raises
Tradeoffs Among Different Decision Makers' Needs
oversight because unless otherwise explicitly stated in statutory language
agencies are not legally bound by funding levels shown for program
activities in the Program and Financing (P&F) schedules of the President's
budget or presented in the congressional budget justifications submitted
to Congress by agencies. However, the program activity listing and budget
estimates included in an agency's congressional budget justification form
some of the bases for assessing agency needs and making appropriations
and, together with congressional hearings and statements in committee
reports indicating how funds should or should not be spent, reflect an
understanding of how federal funds will be used by an agency during the
fiscal year. As such, the program activity listing and congressional
budget justification play an important role in budget deliberations and
execution.
EPA and SBA made agencywide changes to both their program activities and
congressional budget justifications, and four other agencies (Labor,
Commerce, HUD, and DOT) made agencywide changes only to their
justifications.4 Although the statutory framework for budget resource
trade-offs and oversight did not change in these six agencies, in one
(EPA) it served as the basis for corresponding changes in reprogramming
guidelines-part of the management and oversight framework for budget
resources. When EPA restructured its budget to better align with its
strategic plan, Congress changed EPA's reprogramming guidance to allow
funding shifts within strategic objectives, such as "Healthier Outdoor
Air." Prior to restructuring, EPA's reprogramming guidance only allowed
shifting funds within specific program elements. This change could
potentially give managers more flexibility. The other departments changed
the congressional budget justification without related changes to their
reprogramming guidelines.
3.2b: Other Congressional Budget restructuring alone may not necessarily
change management and oversight of budget resources because of other ways
Congress and
Controls Influence
Management and Oversight agencies oversee and manage budget resources. In
addition to creating of Budget Resources appropriations accounts, Congress
oversees resource use through various
4 While some bureaus within Labor or DOT proposed changes to their account
structure or program activities, the departments as a whole did not
restructure their budgets. Congress did not accept DOT's proposed
appropriations account structure for either fiscal year 2004 or fiscal
year 2005. According to Labor officials, its proposed changes reflect
policy changes and were not part of this initiative.
Page 63 GAO-05-117SP Performance Budgeting Section 3: Restructuring
Budgets May Help Reframe Budget Choices and Raises Tradeoffs Among
Different Decision Makers' Needs
methods, including statutory language (e.g., earmarks5 or restrictions in
appropriations acts), transfer authority,6 reprogramming guidelines,7 and
appropriations committee report language indicating how funds should or
should not be spent. For example, as stated in committee report language,
agencies are usually required to notify or consult with the appropriate
congressional committees about reprogramming. Agencies also have more
detailed mechanisms required by law such as systems of administrative
control of funds-project and activity plans maintained by program managers
to monitor and control obligations and expenditures.8
For example, although VA's proposed consolidation of some appropriations
accounts would on its own have changed the resource trade-offs available
to managers, VA also proposed appropriations language that would have
limited some trade-offs among budget resources. For fiscal years 2004 and
2005, VA proposed to include all medical-care related expenses-including
facilities operations and maintenance, provision of care, construction,
grants, and administration-under one appropriations account. This change
might have allowed greater flexibility to make trade-offs among these
components, but the proposed appropriations language included ceilings for
central administration and grants-a limitation on the Veterans Health
Administration's (VHA) ability to make trade-offs among these resources.
Under the proposed language, VHA would have been allowed to shift funds
from construction to administration but not from administration to
construction. Appropriations language providing similar limitations was
included for the other VA administrations. For example, in the proposed
Disability Compensation Administration account for fiscal year 2005,
construction funding would have been limited. As a result, the Veterans
5 Earmarking is dedicating collections by law for a specific purpose or
program or dedicating appropriations for a particular purpose. Legislative
language may designate any portion of a lump-sum amount for particular
purposes. Earmarking may refer to statutory language (in appropriations
acts) or nonstatutory language (in reports accompanying the acts).
6 Authority specifically authorized by law that allows shifting all or
part of the budget authority provided in one appropriations account to
another.
7 Reprogramming is shifting funds from one object to another within an
appropriations account to use them for different purposes than those
contemplated at the time of appropriation.
8 The Antideficiency Act requires that agencies prescribe, by regulation,
a system of administrative control of funds.
Section 3: Restructuring Budgets May Help Reframe Budget Choices and
Raises Tradeoffs Among Different Decision Makers' Needs
Benefit Administration (VBA) would have been able to shift funds from
construction to operations but not from operations to construction.
While EPA's budget restructuring focused on managing resources by
strategic goals and objectives, appropriations language and committee
report language have continued to focus on the program/project level. As a
result, resource trade-offs would be limited. Prior to restructuring, EPA
was required to notify appropriations committees when shifting funds among
"programs, activities, or elements." Since its fiscal year 1999 budget
(the first budget structured around strategic goals and objectives),
appropriations committees changed EPA's reprogramming guidelines to allow
funding changes within more aggregated strategic objectives, such as
Healthier Outdoor Air. This change potentially would allow EPA to make
resource trade-offs among program/projects that support a common strategic
objective (e.g., between the Clean School Bus Initiative and
Administrative Projects within the Healthier Outdoor Air strategic
objective). However, appropriations language specified funding for a
number of EPA's programs and appropriations committee report language also
included funding directives for programs or projects.9 EPA officials said
that they execute the budget based on congressional intent reflected in
committee reports. Thus, EPA incorporates congressional funding directives
into the agency's operating plan. An added limitation to EPA's ability to
make trade-offs among programs that support a common strategic objective
is that some program/projects are funded from different appropriations
accounts, and EPA does not have authority to transfer resources among
appropriations accounts.
Although NASA's restructuring provides flexibility for some additional
resource trade-offs, internal management controls and reprogramming
guidelines limit other trade-offs. Consolidated appropriations accounts
provide program managers with more flexibility and influence over the
resources used by their programs, but that flexibility is limited by the
fixed cost nature of services and labor; in particular, resource
trade-offs among items of expense, such as general administration and
civil personnel salaries, are limited during budget execution. NASA
officials told us that during budget formulation, all resources within a
program (excluding
9 According to our analysis, over 50 percent of EPA's budget is dedicated
to specific programs.
Page 65 GAO-05-117SP Performance Budgeting Section 3: Restructuring
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Different Decision Makers' Needs
3.3: Some Viewed Budget Restructuring as Supporting Improved Management
and Oversight, but Concerns and Limitations also Raised
center and corporate G&A)10 are interchangeable, but during budget
execution trade-offs among resources for civil servants and other
resources are limited because contract agreements are established for some
services and civil service regulations must be followed. Also, while NASA
restructured its budget to help manage at the more aggregated theme level,
its ability to reprogram remained tied to its programs. This limits the
resource trade-offs that can be made among programs within a theme to a
certain dollar threshold.11 For example, under its reprogramming
guidelines, NASA must notify the appropriations committees before making
resource trade-offs above the reprogramming threshold between Flight
Hardware and Ground Operations within the Space Shuttle Theme.
Our work revealed differing views on the potential benefits and
shortcomings of restructuring budgets to better align budget resources
with programs and performance. These differing views reflect the
multiplicity of roles, perspectives, and needs of Congress, OMB, and
different levels of management within agencies. OMB staff and agency
officials we spoke with described benefits or anticipated benefits of
budget changes, including increasing agency management's understanding of
and attention to strategic planning, performance, and results and
providing more complete information on the budget resources associated
with programs and performance. Beyond enhancing information, some agency
officials saw incentives to recognize and make resource trade-offs.
However, some executive branch managers and congressional staff indicated
that budget restructuring did not meet their needs. Agency officials from
two of our case study agencies noted that budget
10 Center G&A (General and Administrative) costs are center costs that
cannot be related or traced to a specific project but benefit all
activities. Corporate G&A are costs related to the business operations of
NASA headquarters. While a share of these are allocated to program budgets
and program managers may question their allocation of these costs during
budget formulation, NASA's program managers cannot make trade-offs between
them and other resources once allocations have been established.
11 For fiscal year 2004, the House Appropriations Committee allowed
reprogrammings between programs, activities, object classifications, and
elements up to $500,000 without notifying the committee. The Senate
Appropriations Committee allowed reprogrammings among programs,
activities, and elements only up to $250,000 without notifying the
committee. NASA requested that appropriations committees change its
reprogramming guidelines to allow reprogramming within a theme and also
sought to increase its reprogramming level to $10 million; however,
Congress did not accept these changes.
Section 3: Restructuring Budgets May Help Reframe Budget Choices and Raises
Tradeoffs Among Different Decision Makers' Needs
3.3a: Budget Restructuring Viewed by Some as Supporting Results-Oriented
Management and Oversight
restructuring might create new resource management challenges. Officials
and program managers from most of the nine agencies we reviewed as well as
appropriations staff we spoke with viewed appropriations account
restructuring as unnecessary to advance results-oriented management. While
some appropriations committee reports and subcommittee staff we spoke with
gave general support to budget and performance integration efforts,
including aligning resources with programs and performance, appropriations
staff raised a number of other concerns in several appropriations
committee reports or in interviews with us. Further, some congressional
appropriations staff and agency officials noted that, in their opinion,
the changes did not result in information they consider most useful for
improving management and oversight.
OMB staff and agency officials credited appropriations account structure
and congressional budget justification changes with supporting
results-oriented management and oversight by:
o increasing attention to strategic planning, performance, and results;
o providing more complete information on the budget resources associated
with performance; and
o in some cases, enhancing incentives and flexibility to make resource
trade-offs.
Increasing Attention to Strategic Planning, Performance, and Results
OMB staff emphasized the importance of budget restructuring for increasing
attention to results during the budget process. One of OMB's objectives
for this initiative is for agencies to justify their budget requests based
on the resources needed to make planned progress toward strategic goals.
Through its budget guidance, OMB said the agency's strategic plan was to
be the template for the "performance budget" and encouraged agencies to
change their current budget account structures to enhance the
understanding of programs and measures of performance. Further, OMB said
that structuring the budget this way presents a more complete picture of
what an agency is trying to achieve and enhances public and congressional
understanding of government performance.
Section 3: Restructuring Budgets May Help Reframe Budget Choices and
Raises Tradeoffs Among Different Decision Makers' Needs
Officials we spoke with or documents we reviewed from five agencies
indicated that the restructured budgets were intended to increase the
attention to strategic planning, performance, and results during budget
deliberations. For example, some EPA and Labor officials credited changes
with increasing their agency's focus on strategic and performance goals.
In the case study agencies, some officials said that managers now have a
greater incentive to better understand and pay attention to the strategic
and performance frameworks because they must tie budget requests to goals.
According to an EPA official, the move to the performance-based budget
structure was part of an effort to more fully integrate the budgeting and
planning system. Without changing and combining the congressional budget
justification and performance plan, changing EPA's culture would have been
more difficult. NASA officials credited budget restructuring with helping
to ensure that funding decisions are aligned with its strategic plan,
noting that prior to budget restructuring, NASA could not show how some
activities related to its strategic plan. In its fiscal years 2004 and
2005 congressional budget justifications, VA stated that the new structure
would better position VA to make resource decisions based on programs and
results and improve planning, among other things. Officials from several
agencies also said that they anticipate that changes would help provide a
more complete picture for external users of their agencies' overall
missions and how budget resources support their missions.
OMB and officials from four agencies also credited the budget changes with
facilitating increased coordination among programs that support common
goals and objectives. For example, OMB staff credited EPA's budget
restructuring with leading to greater integration of program/projects that
support common goals and objectives. OMB staff explained that there is
more coordination among EPA's program offices because programs that
support common goals and objectives have to "sell" themselves together
under the new planning and budget structure. For example, the Endocrine
Disruptor Screening Program12 (within the Office of Prevention,
Pesticides, and Toxic Substances (OPPTS)) and the Office of Research and
Development (ORD) both support EPA's strategic objective Enhance Science
and Research. OMB staff said the OPPTS reviewed ORD's research plans to
ensure the research and development would support the
12 The Endocrine Disruption Screening Program is mandated to screen and
test chemicals to identify potential endocrine disruptors, or substances
that have adverse hormonal effects in humans.
Page 68 GAO-05-117SP Performance Budgeting Section 3: Restructuring
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Different Decision Makers' Needs
program. This type of coordination did not happen prior to the strategic
planning and budget structure changes, according to an OMB program
examiner.
A NASA official also credited the agency's new theme-based budget
structure, which shows the collection of programs that support common
strategic goals and objectives, with showing how program elements relate
to each other in achieving strategic plan objectives. A VA official also
credited the process of restructuring its congressional budget
justification with bringing managers together in a more coordinated
manner. For example, VA works toward goals for increasing veteran access
to burial space in two ways: (1) VA builds cemeteries incurring the
maintenance and operational costs associated with them, or (2) provides
grants to states. VA officials explained that prior to budget
restructuring efforts, VA tended to work "in stovepipes" and did not look
at all resources used to provide burial services. In the officials' views,
budget restructuring, which pulled together resources that were presented
separately in prior congressional budget justifications, provides managers
with a better picture of the total resources of the program.
Providing More Complete Information on the Budget Resources Associated
with Performance
OMB staff and officials from seven agencies also credited budget
restructuring with providing more complete information on the budget
resources associated with performance. For example, prior to the fiscal
year 1999 budget, EPA's justification had been organized with a chapter
for each appropriations account and sections within each chapter for each
EPA office. The justification contained a Science and Technology chapter,
which in turn included sections for EPA's offices funded by that
appropriations account, which was followed by program information.
Beginning with the fiscal year 1999 budget justification, EPA's budget
information was organized by strategic goals and objectives and EPA tied
both direct and indirect budget resources to strategic goals and
objectives.13 EPA officials credited its restructured congressional budget
justifications with highlighting the program funding levels associated
with achieving goals and objectives and providing a better understanding
of how resources fit together to achieve goals and objectives.
13 For fiscal year 2006, EPA reorganized its justification so that it is
organized by appropriations account and program/project.
Page 69 GAO-05-117SP Performance Budgeting Section 3: Restructuring
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Different Decision Makers' Needs
A Labor official and OMB staff also credited changes with giving decision
makers a better idea of resources needed to achieve performance. In its
previous congressional budget justification, Labor tied only direct budget
resources to its programs and highlighted, but did not tie budget
resources to, its annual performance goals. Now, Labor shows the direct
and indirect budget resources associated with its programs and their
associated performance goals, including some indirect costs, such as legal
services and bureau administration. The Labor official said this
information gives budget decision makers a better idea of what can be
expected to be achieved with a given level of resources.
OMB staff and agency officials also said that NASA and VA's budget
restructuring efforts provide more complete information. OMB staff, a NASA
official, and a congressional staff we spoke with said "full cost" is
useful because it provides context for institutional costs, including the
cost of civil servants and facilities, and provides better information on
total program costs. Some VA officials also noted the anticipated benefits
of improving information on the budget resources used to achieve the
program performance goals and helping highlight potential trade-offs among
resources.
According to VA officials and program managers, the budget resources used
to achieve the program performance goals are not readily apparent under
VA's current appropriations account structure. The burial program, for
example, is funded by six appropriations accounts14 and the program's
budget resources were shown in separate volumes of the congressional
budget justification prior to restructuring. According to VA officials,
this format complicated discussions about the relationship between the
program's performance goals and the resources needed to achieve them. For
example, performance measures related to ensuring that veterans and
eligible family members have reasonable access to veteran cemeteries are
supported by the operating, construction, and grant appropriations
accounts, which previously were shown in separate volumes of the
congressional budget justification. After presenting the burial program's
budget resources together, VA officials said that presenting these budget
14 These appropriations accounts include: (1) National Cemetery
Administration, which funds the operations and maintenance of veterans
cemeteries; (2) Compensation and Pensions, which funds the burial benefits
provided, such as burial flags, graveliners, and headstones; (3) General
Operating Expenses, which funds VBA's burial-related administrative
expenses; (4) Grants for the Construction of State Veterans Cemeteries;
(5) Major Construction, which funds new national cemeteries; and (6) Minor
Construction.
Page 70 GAO-05-117SP Performance Budgeting Section 3: Restructuring
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Different Decision Makers' Needs
resources together provided a better understanding of the resources needed
to achieve the Burial program's performance goals and helped highlight
potential trade-offs among resources. For example, some officials noted
that consolidating Burial program resources would have helped to highlight
the potential trade-offs between federal construction and grants to states
to construct veteran cemeteries.
In addition, officials from several agencies in our general review noted
that the new format provided more insight into the resources associated
with programs and performance. For example, an official from DOJ said that
appropriations account structure changes would provide a fuller picture of
resources being used to achieve its performance goals. When talking about
overcrowded prisons, for example, one would have to look at two accounts
under the existing account structure to get the full picture of resources
being used to achieve related performance goals. DOJ proposed to merge
salaries and expenses accounts with construction accounts, thereby showing
all the resources used in one place.
Enhancing Incentives and Flexibility to Make Resource Trade-offs
OMB stressed the importance of aligning budget authority and
accountability with programs and performance to provide not only the
information but also the incentives and flexibility to allocate resources
and execute the budget with a focus on effectiveness. Although OMB staff
said information could be provided on the cost of programs or performance
in crosswalk tables, it is the appropriations account structure that
provides the framework for management incentives and resource trade-offs.
According to OMB, "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."15
Officials we spoke with from six agencies also emphasized that the
appropriations account structure changes not only provided more complete
information on the resources associated with programs or performance but
also provided incentives to recognize and flexibility to
15 Office of Management and Budget, Analytical Perspectives: Budget of the
United States Government, Fiscal Year 2004 (February 2003).
Page 71 GAO-05-117SP Performance Budgeting Section 3: Restructuring
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Different Decision Makers' Needs
make resource trade-offs to improve efficiency and effectiveness. For
example, a key objective of NASA's budget restructuring was to provide
incentives for improved resource management. According to NASA officials,
because NASA's program budgets now include all direct and indirect budget
resources associated with a project and managers are responsible for these
resources, managers now have better information and incentives to consider
trade-offs between various items of expense, such as administrative costs,
supplies, direct civil servants, and contractors to use resources more
efficiently. Before budget restructuring, program managers' budgets only
included procurement dollars and not the cost of civil servant salaries,
so that civil servants appeared "free" to program managers. Under NASA's
restructured "full cost" budget, civil servants' salaries are included in
program managers' budgets, and NASA officials said that they view this
change as making program managers more accountable for these resources
because these managers have greater incentives to use civil servants' time
more efficiently. In addition, they believe that the allocation of a
portion of central administrative costs to each program makes program
managers more likely to pay attention and question these costs, which in
turn increases pressure on headquarters and centers to reduce costs.
Similarly, some OMB staff said that VA's proposed appropriations account
structure would provide the incentives and flexibility to make resource
trade-offs to improve program management. For example, VA proposed to
include all medical care related expenses (i.e., facilities operations and
maintenance, provision of care, construction, grants, and administration)
under one appropriations account. OMB staff said that because construction
projects would be included in program budgets, managers would be more
accountable for those resources and would be more compelled to make
trade-offs between capital and human assets. Under the proposed structure,
VHA, which is responsible for providing medical care, would be able to
shift funds from administration and grants to construction or operations
without transfer authority.16 OMB staff said that only showing the total
resources associated with programs through
16 This flexibility would be limited by both reprogramming guidelines and
proposed appropriations language. VHA would have to notify Congress for
shifts in funds above reprogramming guidelines. Also, proposed
appropriations language for the medical care account included ceilings for
central administration and grant spending. As a result, VHA would not be
able to use construction or operations funding for central administration
or grants. OMB staff said this proposed appropriations language was
intended to address congressional concerns.
Section 3: Restructuring Budgets May Help Reframe Budget Choices and Raises
Tradeoffs Among Different Decision Makers' Needs
3.3b: Some Noted Limitations and Concerns
presentational changes would not provide the incentive for managers to
more carefully consider resource use and use them more efficiently.
In addition, NASA officials credited "full cost" budgeting with helping to
identify underutilized facilities, such as service pools-the
infrastructure capabilities that support multiple programs and projects.
NASA's service pools include wind tunnels, information technology, and
fabrication services. Prior to "full cost" budgeting, service pool
resources were shown and budgeted for separately from the programs that
used them and were not aligned with NASA's strategic plan. Now these
resources are allocated to NASA's programs and included as part of program
budgets based on use. NASA officials credit this approach with making
underused service pools more visible. If programs do not cover a service
pool's costs, NASA officials said that it raises questions about whether
that capability is needed. NASA officials also explained that when program
managers are responsible for paying service pool costs associated with
their program, program managers have an incentive to consider their use
and whether lower cost alternatives exist. As a result, NASA officials
said "full cost" budgeting provides officials and program managers with a
greater incentive to improve the management of these institutional assets.
Proposed budget restructuring did not meet with universal approval:
concerns were raised both by some executive branch managers and
congressional appropriations committees. Officials from two case study
agencies noted that the changes had the potential to create new resource
management challenges. Appropriations subcommittee staff expressed
concerns and sometimes disapproval of agencies' efforts to restructure
budgets. Even among those supportive of advancing results-oriented
management, universal agreement on the necessity of account structure
changes did not exist. In addition, both agency staff and appropriations
subcommittee staff said that budget restructuring did not provide some
information they saw as most useful to advancing results-oriented
management.
Some Expressed Concerns that Budget Restructuring Has the Potential to
Create New Resource Management Challenges
Some VA and NASA officials expressed concern that budget structure changes
have the potential to create new resource management challenges. These
concerns stem, in part, from differences between the proposed
appropriations account structure and how an agency currently operates as
Section 3: Restructuring Budgets May Help Reframe Budget Choices and
Raises Tradeoffs Among Different Decision Makers' Needs
well as concerns about the ability to accurately allocate resources within
the new structure. One area in which restructured budgets were seen as
likely complicating resource management at VA was where resources that
were previously provided in a single appropriations account are
disaggregated to flow through multiple appropriations accounts to better
align with programs and performance. For example, under VA's fiscal year
2003 account structure, the General Operating Expenses (GOE)
appropriations account funded administrative expenses for VBA's benefit
programs. Within this appropriations account and within reprogramming
guidelines, VBA could shift administrative funds among programs throughout
the year to address performance issues or changes in benefit claims that
might arise due to war or legislative changes. Under the proposed account
structures for fiscal years 2004 and 2005, each program's administrative
expenses would have been paid from separate appropriations accounts.
Disaggregating appropriations accounts would limit the ability to shift
administrative funds among programs throughout the year to address
emerging needs because transferring resources between appropriations
accounts generally requires further congressional action. VA officials
raised concerns about how the changes might affect their ability to
respond to changes in benefit claims.
In addition, some expressed concerns that estimation uncertainty
surrounding the allocations of administrative costs may have implications
for executing the budget properly and avoiding antideficiency
violations.17 Currently in VA, a VBA employee who administers
compensation, pensions, and burial benefits is paid from the GOE
appropriations account. Under the proposed appropriations account
structures for fiscal years 2004 and 2005, a VBA employee's salary would
have been paid from more than one appropriations account. Splitting a VBA
employee's salary among three appropriations accounts would require
estimating the time the employee spent on each program. Similar concerns
were raised by VHA officials because doctors that spend time providing
medical care and conducting medical research would be paid through two
appropriations accounts under the fiscal years 2004 and 2005 proposed
account structures. VA officials told us that estimation uncertainty
surrounding the allocations of
17 The Antideficiency Act, among other things, prohibits making
expenditures or incurring obligations in excess of amounts available in
appropriations accounts unless specifically authorized by law.
Page 74 GAO-05-117SP Performance Budgeting Section 3: Restructuring
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Different Decision Makers' Needs
administrative costs was one reason VA requested transfer authority for
operational expenses between six program accounts.18
OMB staff's response to VA's concerns was that the proposed appropriations
account structure would have provided needed incentives for the department
to address long-standing cost estimation and financial management issues.
OMB staff said that changing the appropriations account structure to align
budget resources with programs and performance creates an incentive for
managers to consider more seriously the budget resources of their programs
during budget formulation, including whether the requested amount is
adequate in terms of operating the program and meeting performance goals
and to develop the systems to better track spending.
At NASA, views differed about the potential implications of the budget
structure changes for managers' ability to respond to changing needs. Some
program managers expressed concerns that the changes could limit their
ability to respond to staffing uncertainties. Under NASA's previous budget
structure, program budgets were not charged for civil servants working on
their projects and staffing uncertainties were covered in center budgets.
A program needing additional staff would request them from the center,
which retained additional full-time equivalents (FTEs). Under the new
budget structure, civil servants and the associated budget authority are
requested and funded through program budgets. Some NASA program managers
expressed concern that they might not be able to deal with an unexpected
increase in workload because NASA program managers will have to come up
with the money to pay for the civil servants, which might limit the extent
to which they can shift budget resources among programs. Another program
manager, however, suggested that since control over civil servants has
moved from center managers to program managers, "full cost" budgeting
would reduce some "red tape" in dealing with sudden needs or emergencies
and that as a result, program managers could move FTEs more quickly.19
18 Transfer authority of up to 10 percent in the first year, up to 5
percent in the next year, and zero percent in the third year was requested
among the following accounts: Compensation, Pensions, Insurance,
Education, Vocational Rehabilitation and Employment (VR&E), and Burial.
19 To address staffing concerns, NASA issued a policy statement describing
how unexpected staffing needs would be met. For more information about
this issue, see app. V.
Page 75 GAO-05-117SP Performance Budgeting Section 3: Restructuring
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Different Decision Makers' Needs
Another area of concern is how budget structure changes would affect the
balance between maintaining strategic or institutional capacity-its
physical and human capital-and creating incentives for operational
efficiencies. Specifically, some at NASA expressed concerns that its
changes created incentives that could over time erode the agency's
commitment to institutional assets such as central facilities and service
pools. Under the new structure, budget authority for institutional assets
are allocated to and requested by program budgets. The rate used to charge
program budgets is determined by the operating cost of the facility and
the units of consumption. As a result, a declining number of users can
lead to increasing service charges for others using centers or service
pools. Some speculated that this could in turn lead to a "death spiral" as
increasing user charges drove out other programs, resulting in even higher
user charges. Consequently, assets not adequately covered by user charges
might be eliminated even though they might be valuable to the institution
as a whole. A NASA official told us, however, that any asset considered to
be mission critical would be maintained even if underused. These underused
assets could be funded through general administration, which is allocated
across all programs or by directing other work activities to the asset.
Some Appropriations Subcommittees Noted General Support for Budget and
Performance Integration Efforts but Raised Concerns about Agency Budget
Restructuring Efforts
While some appropriations committee reports and subcommittee staff we
spoke with gave general support to budget and performance integration,
including efforts to better link budget resources to performance, they
raised a number of concerns about the agencies' budget restructuring
efforts. For the most part, subcommittees continued to state a preference
for and rely on previously established budget structures. Several key
concerns were raised:
o organizational frameworks used to restructure budgets did not meet
appropriators' needs,
o reduced visibility of items of particular interest to appropriations
subcommittees, and
o overly cumbersome and difficult-to-use congressional budget
justifications.
Section 3: Restructuring Budgets May Help Reframe Budget Choices and Raises
Tradeoffs Among Different Decision Makers' Needs
Regardless of General Support for Budget and Performance Integration
Efforts, Appropriations Subcommittees Continue to State a Preference for
and Rely on Previously Established Structures
Some appropriations committee reports and subcommittee staff with whom we
spoke expressed general support for budget and performance integration
efforts, including efforts to better align resources with programs and
performance. Some recognized the potential value of budget restructuring
efforts for agency strategic and performance management. However, for the
most part subcommittees continued to state a preference for and rely on
previously established structures. Several stated that congressional
budget justifications are intended for the congressional appropriations
subcommittees and should be done to meet the needs of congressional
members and their staff. In some cases, appropriations committees
generally objected to changes that replaced information traditionally used
for congressional appropriations with new performance information, which
they viewed as supplemental at best.
In our review of appropriations committee reports, we found some general
expressions of support for budget and performance integration efforts.
Further, appropriations subcommittee staff we spoke with could see the
potential value of budget restructuring efforts for agency management. For
example, in its reports for VA's fiscal years 2004 and 2005
appropriations, the committee stated that it "supports the
administration's efforts to align costs and funding with each program and
to simplify the account structure."20 Also, in the House Appropriations
Committee report on fiscal year 2005 appropriations for DOJ, Commerce, and
SBA, the committee stated that it "is supportive of budget and performance
integration so that government programs can become more
results-oriented."21 An appropriations subcommittee staff we spoke with
said that the budget structure changes aligned the agency's facilities and
infrastructure to its programs and provided the information needed-total
program cost. In its report on Labor's fiscal year 2004 appropriations,
the House Appropriations Committee urges agencies under its jurisdiction
"to manage themselves based on performance and outcomes" and to "use
outcome and
20 Senate Committee on Appropriations Report 108-143, Departments of
Veterans Affairs and Housing and Urban Development, and Independent
Agencies Appropriations Bill, 2004 (Sept. 5, 2003), p. 8; and Senate
Committee on Appropriations Report 108-353, Departments of Veterans
Affairs and Housing and Urban Development, and Independent Agencies
Appropriations Bill, 2005 (Sept. 21, 2004), p. 8.
21 House Committee on Appropriations Report 108-576, Departments of
Commerce, Justice, and State, the Judiciary, and Related Agencies
Appropriations Bill, Fiscal Year 2005
(July 1, 2004), pp. 7-8.
Section 3: Restructuring Budgets May Help Reframe Budget Choices and
Raises Tradeoffs Among Different Decision Makers' Needs
performance measures as the primary management tool for resource
allocation and the evaluation of programs and individuals."22 Also, while
expressing concerns about EPA's restructured budget for their purposes,
appropriations subcommittee staff we spoke with said the information in
EPA's congressional budget justification might be useful for agency
managers. Another staff said "performance budgeting is a good concept,"
and that agency managers should know whether and how they are achieving
goals.
However, general support did not translate into acceptance of the specific
proposed changes, and for the most part appropriations subcommittees
continued to state a preference for and rely on previously established
budget structures and presentations. For example, although the
appropriations subcommittee accepted EPA's congressional budget
justification, which was structured around its strategic goals and
objectives, the subcommittee required that EPA provide program
information. In committee reports on EPA's fiscal year 2005 budget, the
House and Senate appropriations subcommittees urged EPA to reformat its
congressional budget justification to increase clarity and transparency.23
Only in NASA's case did Congress adopt the proposed appropriations account
structure to appropriate funds.
Appropriations subcommittees rejected the proposed appropriations account
structure changes for VA and DOJ.24 VA's House and Senate Appropriations
Committees did not adopt VA's proposed appropriations account structure
for fiscal year 2004 or for fiscal year 2005. In fact, the House
Appropriations Committee moved in a different direction, proposing a new
account structure for VHA that differed from what VA had
22 House Committee on Appropriations Report 108-188, Departments of Labor,
Health and Human Services, and Education and Related Agencies
Appropriation Bill 2004 (July 8, 2003), p. 8.
23 House Committee on Appropriations Report 108-674, Departments of
Veterans Affairs and Housing and Urban Development, and Independent
Agencies Appropriations Bill, 2005 (Sept. 9, 2004), p. 91; Senate
Committee on Appropriations Report 108-353, Departments of Veterans
Affairs and Housing and Urban Development, and Independent Agencies
Appropriations Bill, 2005 (Sept. 21, 2004), p. 111; and H.R. Conf. Rep.
No. 108792, p. 1597 (2004).
24 In addition, for DOT, Congress did not accept the Federal Transit
Administration's (FTA) and the Federal Motor Carrier Safety
Administration's (FMCSA) proposed appropriations account structures for
either fiscal year 2004 or 2005.
Section 3: Restructuring Budgets May Help Reframe Budget Choices and
Raises Tradeoffs Among Different Decision Makers' Needs
proposed.25 Further, the House Committee report for fiscal year 2004
directed VA "to refrain from incorporating `performance-based' budget
documents in the 2005 budget justification submitted to the Committee, but
keep the Performance Plan as a separate volume."26 However, VA resubmitted
a restructured performance-based budget for fiscal year 2005. In the House
Appropriations Committee report for the fiscal year 2005 budget, the
committee reiterated its concerns about the performance-based structure.
While the committee recognized "the right of the executive branch to
propose whatever structure it deems necessary," it stated, "If the
Department wishes to continue the wasteful practice of submitting a budget
structure that will not serve the needs of the Congress, the Congress has
little choice but to reject that structure and continue providing
appropriations that serve its purposes."27 Also, for the most part,
Congress did not accept DOJ's proposed account structure changes that
would merge construction funding with the salaries and expense accounts
for either fiscal year 2004 or 2005.28
In some cases, the House Appropriations Committee directed DOT to submit
the fiscal year 2006 congressional budget justification in a format
similar to fiscal year 2003 or earlier congressional budget
justifications. For example, for the salaries and expenses of the Office
of the Secretary, the committee directed the department "to submit its
fiscal year 2006 Congressional justification materials at the same level
of detail provided in
25 The House committee recommended an alternative account structure that
included three separate appropriations accounts for the Medical Care
program: (1) Medical services,
(2) Medical facilities, and (3) Medical administration. According to the
House committee report, the alternative account structure "will provide a
better accounting of appropriated and receipt funds and will lead to
better oversight of the costs and expenditures of VHA." House Committee on
Appropriations Report 108-235, Departments of Veterans Affairs and Housing
and Urban Development, And Independent Agencies Appropriations Bill, 2004
(July 24, 2003), p. 9.
26 House Committee on Appropriations Report 108-235, Departments of
Veterans Affairs and Housing and Urban Development, and Independent
Agencies Appropriations Bill, 2004 (July 24, 2003), p. 4.
27 House Committee on Appropriations Report 108-674, Departments of
Veterans Affairs and Housing and Urban Development, and Independent
Agencies Appropriations Bill, 2005 (Sept. 9, 2004), p. 4.
28 For fiscal year 2005, Congress approved the proposed account structure
for DOJ's Drug Enforcement Agency.
Section 3: Restructuring Budgets May Help Reframe Budget Choices and
Raises Tradeoffs Among Different Decision Makers' Needs
the Congressional justifications presented in fiscal year 2003."29 Also,
while the House and Senate Appropriations Committees used FAA's
restructured budget to appropriate funds for fiscal years 2003 and 2004,
the House committee returned to the fiscal year 2002 structure-the
structure used prior to restructuring-for the fiscal year 2005 budget. The
committee explained, "After testing this structure for the past two years,
the Committee finds that it is inferior to the previous structure" and "To
avoid confusion, the Committee encourages the agency to follow this
organization in future budget requests."30
Similarly, the House Appropriations Committee stated a preference for
previously submitted budget structures and presentations, saying that it
considered HUD's "performance-based budget" a "strategic planning document
for departmental managers, rather than a detailed budget justification
document." The committee directed HUD "not to submit or otherwise
incorporate the strategic planning document or its structure into its
fiscal year 2005 Budget Justification submission to the Committee."31 At
least in part because of congressional concerns, HUD did not submit a
"performance budget" for fiscal year 2005 and instead included links
between resources and results in a separate performance plan. In the
fiscal year 2005 report, the committee expressed appreciation and
continued its direction that "strategic planning document, formats or
materials are not to be incorporated into the [budget] submission."32
While Labor's Senate appropriations committee stated that displaying
performance-based budgets is a "commendable goal" in its fiscal year 2004
committee report, the committee "continues to rely on the traditional
display of appropriations account information provided prior to fiscal
year
29 House Committee on Appropriations Report 108-671, Departments of
Transportation and Treasury and Independent Agencies Appropriations Bill,
2005 (Sept. 8, 2004), p. 8.
30 House Committee on Appropriations Report 108-671, Departments of
Transportation and Treasury and Independent Agencies Appropriations Bill,
2005 (Sept. 8, 2004), p. 22.
31 House Committee on Appropriations Report 108-235, Departments of
Veterans Affairs and Housing and Urban Development, and Independent
Agencies Appropriations Bill, 2004 (July 24, 2003), p. 79.
32 House Committee on Appropriations Report 108-674, Departments of
Veterans Affairs and Housing and Urban Development, and Independent
Agencies Appropriations Bill, 2005 (Sept. 9, 2004), p. 75.
Section 3: Restructuring Budgets May Help Reframe Budget Choices and Raises
Tradeoffs Among Different Decision Makers' Needs
Organizational Frameworks Used to Restructure Budgets Did Not Meet
Appropriators' Needs
2004."33 In its fiscal year 2005 report, the Senate Appropriations
Committee encouraged Labor "to continue using outcome and performance
measures as the primary management tool for resource allocation and the
evaluation of programs and individuals," but required Labor "to submit its
fiscal year 2006 congressional budget justifications in the traditional
budget structure rather than in a `performance' budget structure."34
Additional performance information should be submitted as a separate
appendix in the budget justification.
OMB instructed agencies to structure the "performance budgets" like their
strategic plans and, where possible to align budget accounts with programs
or the components of programs that contribute to a single strategic goal
or objective. While some appropriations subcommittee staff we spoke with
said that performance information is useful, they did not agree with
structuring the appropriations account and congressional budget
justifications around this type of information. Some appropriations
subcommittee staff explained that, in their opinion, the organizational
frameworks agencies chose did not align with how the agency operated or
with how the subcommittee appropriated funds, did not rely on units by
which the agency was able to track spending, or did not provide useful
information.
Appropriations committee reports or subcommittee staff we spoke with
highlighted several examples of how the frameworks used to restructure the
budget did not meet their needs. For example, a fiscal year 2005 House
Appropriations Committee report stated that VA's proposed account
structure was not adopted "because it does not address the needs of the
Congress in its role of reviewing and allocating federal budgetary
resources."35 Specifically, one appropriations subcommittee staff person
noted that the proposed framework did not align with how the agency
operated. For example, in the staff person's view, the organizational
33 Senate Committee on Appropriations Report 108-81, Department of Labor,
Health and Human Services, and Education and Related Agencies
Appropriation Bill 2004 (June 26, 2003), p. 41.
34 Senate Committee on Appropriations Report 108-345, Departments of
Labor, Health and Human Services, and Education, and Related Agencies
Appropriation Bill 2004 (Sept. 15, 2004), p. 34.
35 House Committee on Appropriations Report 108-674, Departments of
Veterans Affairs and Housing and Urban Development, and Independent
Agencies Appropriations Bill, 2005 (Sept. 9, 2004), p. 4.
Section 3: Restructuring Budgets May Help Reframe Budget Choices and
Raises Tradeoffs Among Different Decision Makers' Needs
framework for VBA's proposed account structure, which would structure its
budget around programs and fund administration resources from several
different program accounts, did not align with how regional offices
operated, in which one staff person's time may be split across multiple
programs. The staff person indicated a preference for information
organized around functional area, such as administration.
EPA offers another example. House appropriations subcommittee staff said
that the organizational framework used for EPA's restructured
congressional budget justification did not align with how the
subcommittees appropriated funds. They explained that EPA's new structure
around strategic goals and objectives didn't match appropriators'
interests or the structure used for appropriations because appropriators
generally focus on and provide resources by program. Staff said that
tracing program funding changes back to goals or determining the effect of
changes in goal funding to programs was difficult.
Others expressed concern that the performance-based organizational
structure focused on units with which staff did not agree. For example,
appropriations subcommittee staff said that the goals presented in the
congressional budget justification did not reflect those of the
subcommittee. Further, an appropriations subcommittee and its staff
expressed concern that organizing the budget around performance goals or
missions might obscure information about how agencies are spending money.
For example, in its committee report for the fiscal year 2005 budget, the
House Appropriations Committee explained that FAA's restructured budget
"depends on overlapping budget categories and subjective judgments among
agency officials concerning a program's predominant purpose."36
Subcommittee staff also expressed concern that agencies request
appropriations in the performance-based frameworks but are unable to track
spending in this framework. For example, some of the nine agencies in our
review have structured their congressional budget justification around
their strategic or performance plans and show or request funding by goals
or objectives. However, according to some appropriations subcommittee
staff, some agencies do not track spending by these goals and objectives
and thus cannot report the amount spent by goal. In
36 House Committee on Appropriations Report 108-671, Departments of
Transportation and Treasury and Independent Agencies Appropriations Bill,
2005 (Sept. 8, 2004), p. 22.
Page 82 GAO-05-117SP Performance Budgeting
Section 3: Restructuring Budgets May Help Reframe Budget Choices and Raises
Tradeoffs Among Different Decision Makers' Needs
Reduced Visibility of Items of Particular Interest to Appropriations
Subcommittees
addition, these appropriations subcommittee staff thought this shift could
make it more difficult to track historical spending trends since goals
might change from year to year. GPRA requires an agency to develop a
strategic plan at least every 3 years to cover the following 5-year
period, and GAO has reported that changes in political leadership may also
result in a new agenda with new objectives.
A concern was also raised that the organizational framework used did not
provide useful cost information. An appropriations subcommittee staff said
that VA's allocation of resources among its programs and offices seemed
"incomplete and inconsistent." Specifically, according to the staff, claim
adjudication was included as part of the Disability Compensation program's
administrative costs, but appeals and court costs, which cover the lawyers
in the Office of General Counsel who are a large part of the claim
adjudication process, were not included. Also, the staff questioned why a
portion of the department's construction resources were allocated to and
requested by VA's Inspector General office. Generally, to the extent staff
were uncomfortable with agencies' ability to meaningfully allocate
resources, they expressed concerns about the value of the information
provided by the restructured budgets.
As agencies increased the performance perspective in congressional budget
justifications, some appropriations subcommittee staff we spoke with said
some information they needed was either less transparent or not provided
within the restructured budgets. For example, several staff said they
found that the restructured congressional budget justification failed to
include information appropriators are most interested in, such as changes
to appropriations language and funding levels, historical information,
funding levels by program or state, object class information, and more
detailed cost and performance information, such as unit cost, workload
information, and output measures. This information lends itself to the
budget process. For example, workload measures, in combination with
cost-per-unit information, can be used to help develop appropriations
levels, and legislators can more easily relate output information to a
funding level to help define or support a desired level of service. Other
staff explained that appropriators also focus on agencies, offices, and
activities and need object class and workload-related information to make
decisions.
The importance of workload and output measures for making budget decisions
is also important at the state level. In a recent review of state
performance budgeting efforts, some state officials said that outcome
Section 3: Restructuring Budgets May Help Reframe Budget Choices and
Raises Tradeoffs Among Different Decision Makers' Needs
measures and performance evaluations were useful in budget deliberations,
but that legislators rely most on workload and output measures when
determining funding levels and desired levels of service relative to
funding.37
Concerns that performance information replaced information needed to make
budget decisions were also expressed in committee reports. For example, a
House Appropriations Committee report said that, "while the amount of
performance data included in budget documents has increased, in many cases
it has been at the expense of programmatic budget data and justifications
that are critical to the work of the Committee."38 Similar concerns were
raised in another committee report and the committee directed the
department to "include in the budget justification funding levels for the
prior year, current year, and budget year for all programs, activities,
initiatives, and program elements."39 In addition, the committee said that
one agency's restructured budget obscured information and made it easier
for agencies to cover cost overruns with little scrutiny.
Along these lines, some appropriations subcommittee staff said that they
sought additional information from the agency instead of using what was
included in the restructured congressional budget justifications or used
the previous year's congressional budget justifications. For example, in
response to congressional concerns that its fiscal year 1999 congressional
budget justification lacked program information, EPA provided
appropriations staff with supplemental information on the budget request
broken down by program in its fiscal year 2000 through fiscal year 2004
justifications. Appropriations subcommittee staff said that Labor's fiscal
year 2004 congressional budget justification failed to provide historical
information and differences in funding for various training programs;
appropriations subcommittee staff asked Labor for additional information
or used earlier congressional budget justifications and constructed their
own tables.
37 GAO, Performance Budgeting: States' Experiences Can Inform Federal
Efforts, GAO-05- 215 (Washington, D.C.: Feb. 28, 2005).
38 House Committee on Appropriations Report 108-576, Departments of
Commerce, Justice, and State, The Judiciary, and Related Agencies
Appropriations Bill, Fiscal Year 2005
(July 1, 2004), p. 8.
39 House Committee on Appropriations Report 108-671, Departments of
Transportation and Treasury and Independent Agencies Appropriations Bill,
2005 (Sept. 8, 2004), pp. 8, 22.
Section 3: Restructuring Budgets May Help Reframe Budget Choices and Raises
Tradeoffs Among Different Decision Makers' Needs
Overly Cumbersome and Difficult-to-Use Congressional Budget Justifications
Some appropriations subcommittee staff felt strongly that the restructured
congressional budget justifications were often overly cumbersome and
difficult to use. Not only did the congressional budget justifications
omit information the committees wanted, they sometimes included
information the committees did not need. Several appropriations committee
reports or subcommittee staff we spoke with stated that congressional
budget justifications are intended for the congressional appropriations
committees and should be prepared to meet the needs of congressional
members and their staff. As expressed in one appropriations committee
report, "In the place of critical budget-justifying material, the
Committee is provided reams of narrative text expounding on the
performance goals and achievements of the various agencies."40 In the view
of some staff, the type of performance information agencies provided is
supplemental and including it in the congressional budget justification
made it hard to use for their purposes. For example, some subcommittee
staff said they found the narrative included in performance-based
congressional budget justifications too voluminous and cumbersome, making
any useful information contained in them too difficult to find. In its
fiscal year 2005 committee report, the House Appropriations Committee
directed DOT and other agencies to refrain from including substantial
amounts of performance data within the congressional budget justifications
themselves, and to instead submit performance-related information under
separate cover.
Not only did appropriations subcommittee staff see the restructured
congressional budget justifications as providing too much
performance-based information, but some also said that the
performance-based justifications were poorly organized or formatted,
making it even more difficult to find needed information. For example, in
one case subcommittee staff pointed out that in the agency's restructured
congressional budget justification, program performance goals were listed
by number without sufficient information to identify the goals. In
addition to using congressional budget justifications from previous years
and creating their own tables, appropriations subcommittee staff said they
needed to flip from section to section to find information that should be
listed on the same page. In the staff's opinion it was much easier to use
the previous congressional budget justifications. Further, staff also said
that the congressional budget justification didn't clearly show how the
40 House Committee on Appropriations Report 108-671, Departments of
Transportation and Treasury and Independent Agencies Appropriations Bill,
2005 (Sept. 8, 2004), p. 5.
Page 85 GAO-05-117SP Performance Budgeting
Section 3: Restructuring Budgets May Help Reframe Budget Choices and Raises
Tradeoffs Among Different Decision Makers' Needs
Agencies Address Congressional Concerns
programs contributed to the agency's goals and missions, and that it was
difficult to understand the relationship between the administrative
resources shown in "full cost" summary tables and those shown in the
administrative appropriations accounts. Another issue was the imbalance
between the amount of information provided and the amount of the funding
request. For example, FAA provided over 170 pages of text discussing the
relatively small share of its budget that is capital programs and only
about 20 pages on the relatively larger operating portion of the budget.
Some agencies made changes to their performance-based budget structures in
response to congressional concerns or direction. For example, both EPA and
Labor reported that they made changes to their budget justifications for
fiscal year 2006 to address congressional concerns. Specifically, in
response to congressional direction to reformat its justification to
increase clarity and transparency, EPA restructured its budget
justification so that it is organized by appropriations account and
program/projects. The new format provides information in a way that
Congress makes decisions-at the program level. EPA continues to provide
information on strategic goals and objectives and the resources associated
with them, but it is streamlined and treated more like a supplement.
According to Labor officials, since the submission of the fiscal years
2004 and 2005 budget justifications, they have worked with congressional
appropriations committee staff to address concerns about the elimination
of program-specific information. Several exhibits, including the 5-year
funding histories, have been reinstated in Labor's "performance budget"
for fiscal year 2006.
Extent to Which Appropriations Account Restructuring Considered Necessary
to Advance Results-Oriented Management Varied
Despite all the recent efforts to restructure the budget, little consensus
exists on whether appropriations account restructuring is necessary to
advance results-oriented management. OMB staff said that it is important
to move beyond aligning budget resources to results for presentational
purposes to appropriating budget authority with programs and performance,
which will provide improved incentives for appropriators and program
managers to recognize and make resource trade-offs. However, OMB also
noted that other factors must be considered and the
Section 3: Restructuring Budgets May Help Reframe Budget Choices and
Raises Tradeoffs Among Different Decision Makers' Needs
restructuring appropriations accounts should be "considered with care."41
OMB staff we spoke with agreed that the need for appropriations account
restructuring should be considered on a case-by-case basis, noting that
appropriations account restructuring may not be necessary for all
agencies.
Agency officials from the nine agencies in our review differed in the
extent to which they viewed appropriations account structure changes as
important for efforts to improve performance. Some saw the changes in
appropriations accounts as necessary to reinforce performance-based
cultural transformations and accountability processes within agencies.
However, most expressed the opinion that appropriations account structure
changes were not critical to their efforts to advance results-oriented
management at this time. Officials generally said that the structure
itself did not present a significant impediment to efforts to improve
performance, noting that other factors, such as underlying authorizing
statutes and earmarks, might create more significant impediments. There
were some agency officials who saw ways in which the appropriations
account structure hindered efforts to improve performance. For example,
some NASA officials said that, prior to restructuring, the previous
appropriations account structure resulted in a lack of accountability over
the resources used to achieve performance and limited managers' abilities
to make resource trade-offs to use resources more efficiently. Others
cited examples in which the current appropriations account structure
complicates the discussion of performance. For example, a DOJ official
noted that DOJ's appropriations account structure does not provide a full
picture of the resources associated with meeting its performance goals.
When talking about overcrowded prisons, for example, one would have to
look at two appropriations accounts under the existing account structure
to get the full picture of resources being used to achieve related
performance goals.
While officials from most agencies did not view appropriations account
structure changes as critical to their results-oriented management
efforts, some officials said that changing the congressional budget
justification without making corresponding changes to the appropriations
account structure might create new challenges. For example, a Commerce
official explained that Commerce currently operates under a
performance-based budget. However, Congress still appropriates under the
previously
41 Office of Management and Budget, Analytical Perspectives, Budget of the
United States Government, Fiscal Year 2003 (Washington, D.C.: February
2002), p. 10.
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Different Decision Makers' Needs
established appropriations account structure. As a result, Commerce must
translate from appropriations accounts to its strategic goals by creating
crosswalks, which were described as time-consuming. Similarly, EPA
officials reported that, prior to the fiscal year 2005 budget, they
formulated and executed the budget at the goal, objective, and
subobjective level. However, once Congress appropriated by key program,
the funds were translated to the performance-based framework. EPA was
concerned that they couldn't track spending by key program and so, for the
fiscal year 2005 budget, EPA implemented changes to its budget and
financial management systems in order to include programs in budget
formulation and execution.
New Budget Structures Do Not Address Some Shortcomings in Cost and
Performance Information Identified as Useful for Results-Oriented
Management
Previous initiatives suggest that it is not practical for one reform to
address the multiple needs and perspectives of Congress, OMB, and other
executive branch managers. Accordingly, it is important to recognize that
budget restructuring alone does not necessarily provide some detailed cost
and performance information cited by agency officials and congressional
staff as most useful in advancing results-oriented management and
addressing some key management challenges. The need for detailed and
adequate cost and performance information is a long-standing challenge.
OMB stressed that budget restructuring is one effort among many that are
intended to work together to advance the integration of budget, cost, and
performance information to support results-oriented management efforts.
One objective of recent budget restructuring efforts is to provide better
information on the "full cost" of achieving performance; however, some
agency officials-mainly at the program manager level-and appropriations
subcommittee staff stressed the importance of more detailed cost and
performance information, such as unit cost and workload information, as
more useful for improving management and oversight than what is provided
by budget restructuring. As an example, the ability to compare the unit
cost of programs or activities across regions was cited as beneficial to
highlighting potential inefficiencies. Similarly, some appropriations
subcommittee staff said detailed unit cost information, such as cost per
patient or cost per insurance claim, was potentially useful in making
budget decisions. Further, a VA official cited the need for cost
accounting information that could help VHA identify underused medical
equipment and divert some of its resources to another medical facility to
help cover costs. These congressional staff and the agency official
pointed
Section 3: Restructuring Budgets May Help Reframe Budget Choices and
Raises Tradeoffs Among Different Decision Makers' Needs
out that the restructured budgets did not provide this information. While
restructured budgets are intended to better capture the "full cost" of
programs and performance, the level at which budgets generally are
organized is more aggregated than the detailed managerial cost information
needed for this type of analysis.
Some also expressed concern that budget restructuring would not provide
information to help address some key agency management challenges. For
example, NASA has had long-standing contracting issues that the
information provided by budget restructuring would not necessarily
address. NASA program managers we spoke with said budget restructuring
would not help reduce or limit cost overruns, which has been a key
performance issue. They said they need more detailed cost information on
contract cost components, including labor and materials, to monitor
contractor performance.42 Others noted that efforts to develop improved
performance measures and metrics have a much greater impact on
results-oriented management than budget restructuring. For example, an
agency official said improving management is not only about managing
dollars more effectively but also improving the level of service. In the
official's view, performance measures about the accessibility and quality
of services-not the budget structure-drive management decisions about
whether or not to build a facility to expand services.
Other officials noted that management initiatives were generally advanced
when internal management and accountability processes, such as performance
management systems, were recast to focus on performance and results, but
budget restructuring was not viewed as essential to foster this shift in
managerial perspective. For example, according to Labor officials, changes
to Labor's performance management system that increase managers
accountability for achieving results affect management more than budget
structure changes. An official suggested that changes to the budget
structure reflect, rather than drive, efforts to advance results-oriented
management.
Given these types of issues, some agency officials, congressional
appropriations staff, and budget experts suggested that improving
financial
42 GAO has also reported that NASA program managers need systems with the
ability to integrate these data with contract schedule information to
monitor progress on the contract. See Business Modernization: Improvements
Needed in Management of NASA's Integrated Financial Management Program,
GAO-03-507 (Washington, D.C.: Apr. 30, 2003).
Page 89 GAO-05-117SP Performance Budgeting Section 3: Restructuring
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and performance information should be a prerequisite to restructuring
budgets and some added that, in their opinion, this step is more important
to improving management and oversight than the recent budget restructuring
efforts. Since it is not practical for one reform to address all decision
makers' needs, it is important to understand what can realistically be
expected from any particular effort as well as how various efforts fit
together so that effective judgments can be made on whether, how, and to
what extent the budget might be restructured given limited resources.
Section 4: Budget Restructuring Efforts Face Challenges
The history of performance budgeting efforts has shown that designing
effective approaches to achieve meaningful connections between performance
and budget structures is a complex undertaking. Current efforts face many
of the same challenges faced by previous initiatives. Restructuring
budgets inevitably requires trade-offs among the needs and perspectives of
Congress and other decision makers because budget structures reflect
fundamental choices about how to frame budget choices and influence
controls and incentives. Structuring budgets to better capture the "full
cost" of programs and performance also involves numerous judgments about
such issues as the relative contribution of various programs to achieve
performance and the appropriate allocation of resources among these
programs and goals. These complexities suggest that designing and
implementing budget restructuring proposals will be a long-term and
experimental process.
While some agencies have demonstrated that sustained commitment by agency
leadership is important to move budget restructuring forward, this
commitment has not yet been shared by congressional appropriators and
other decision makers. A lack of consensus among Congress and other key
decision makers exists on the value of budget restructuring and on the
value of the organizing frameworks used to structure agencies'
performance-based budgets. In some cases this lack of consensus has
increased agencies' workloads and raised questions about the
sustainability of budget restructuring efforts. Questions have also been
raised about the ability of agencies' performance and financial management
systems to support the allocation and tracking of resources adequately
within the new budget structures. Congressional staff and others expressed
concerns about moving forward on budget restructuring without adequate
performance and financial information.
Experiences to date highlight a number of implementation challenges and
issues for current and future budget restructuring efforts including:
o lack of consensus between congressional appropriators and other
decision makers,
o need for sustained commitment, and
o need for adequate systems to support allocation and tracking of costs
within new frameworks.
4.1: Lack of Consensus between Congressional Appropriators and Other
Decision Makers Creates Challenges for Budget Restructuring Efforts
These challenges suggest that budget restructuring may be a long-term,
experimental process requiring flexibility to explore different
approaches.
In many cases, Congress and other key decision makers-OMB and different
levels of agency management-have not reached consensus on the value of
restructuring budgets or the frameworks used to do so. The multiplicity of
roles and needs of Congress and other decision makers may mean complete
consensus is unattainable because no one structure or approach is likely
to satisfy all. However, in some cases, there has been no dialogue between
Congress, OMB, and the agencies. The lack of any consensus creates and
will continue to create significant challenges and frustrations for those
attempting to develop, implement, and use restructured budgets.
As noted in section 3 of this report, agreement has not been reached about
either the value of restructuring budgets around performance or the
specific organizational frameworks used to do so. Any frameworks used to
structure performance budgets-such as strategic goals, performance goals,
programs, or individual item of expense (e.g., salaries and expenses or
construction)-will meet some needs but not others. This is not surprising
given the different roles decision makers have within our constitutional
system of separated powers. For example, appropriations subcommittee staff
highlighted their oversight role and accountability for resource use. They
also cited the demands of allocating limited resources within the time
constraints of the appropriations process. All of these factors led them
to want consistently presented information in areas such as object
classes, program funding, major new initiatives, changes in policy, and
historical spending trends for key functional areas and organizational
units.
In contrast, OMB staff and agency officials tended to emphasize the
importance of linking resource allocation decisions to strategic and
performance goals and the need for increased authority and flexibility
over the resource use to improve efficiency and effectiveness. The various
roles of decision makers within agency management also create differing
needs. As discussed in section 3 of this report, aligning resources with
high-level strategic and performance goals may be useful for strategic
management and assessing performance, but it may not provide the detailed
information needed to inform operational management decisions to improve
efficiency and effectiveness.
These contrasting perspectives were evident in the different reactions of
appropriations staff and OMB officials and staff to agencies'
appropriations account or congressional budget justification changes.
While OMB and some agencies were pursuing efforts to implement
restructured budgets, several appropriations subcommittees were
specifically directing some agencies in their jurisdiction to use
previously established structures and refrain from incorporating
performance-based information into congressional budget justifications.
For example, one House Appropriations Committee report directed agencies
to, "refrain from incorporating `performance-based' budget documents in
the 2005 budget justification submission to the Committee, but keep the
Performance Plan as a separate volume."1 Meanwhile, for the fiscal year
2005 budget, OMB required agencies to submit a "performance budget" that
would integrate an agency's annual performance plan and congressional
budget justification into one document.
Determining whether it is possible to develop any approach to
restructuring budgets around performance acceptable to all decision makers
is made more difficult if there is no consultation. OMB said agencies
should consult with congressional committees before submitting the budget
to ensure they are aware of changes being made to the budget structure,
and OMB recognizes that account structure changes must be negotiated with
Congress. However, some agency officials and congressional appropriations
subcommittee staff we spoke with cited insufficient dialogue between the
agencies and appropriators. For example, some appropriations subcommittee
staff said that they had not been sufficiently consulted about proposed
budget structure changes. Moreover, some appropriations subcommittee staff
said agency officials had presented the changes without providing enough
detail about the changes or, in other cases, did not adequately seek and
respond to their input. One Senate Appropriations Committee report also
reflected these concerns about the need for communication on the framework
used to restructure budgets, stating that "[the Committee] expects the
Department
1 House Committee on Appropriations Report 108-235, Departments of
Veterans Affairs and Housing and Urban Development, and Independent
Agencies Appropriations Bill, 2004 (July 24, 2003), p. 4.
Page 93 GAO-05-117SP Performance Budgeting
to work with the Committee to make sure that the fiscal year 2004 budget
justifications meet Committee needs."2
The lack of consensus, whatever the cause, has and will likely continue to
raise challenges for those attempting to develop and implement
restructured budgets. Agencies' experiences have shown that pursuing
restructured budgets without the agreement-or at least acquiescence-of
appropriations subcommittees can result in significant resources being
used to develop budget structures that are rejected or, if accepted, do
not fully meet congressional needs. This leads in turn to increased agency
and appropriations subcommittee staffs' workloads or frameworks that are
not fully used by congressional appropriators. For example, to satisfy
OMB's requirement to submit a performance budget, some agencies likely
expended significant resources to create performance-based budgets only to
be appropriated and have to execute based on previously established
structures. Furthermore, appropriations subcommittee staff said they used
alternative methods to get the information they needed, including asking
agency staff to provide supplemental information and creating crosswalks
between the performance-based framework and the previously established
framework because some formerly reported information was not included in
the new performance-based congressional budget justifications.
The lack of agreement on the framework used to structure the budget may
not only increase workload but also raise questions about the extent to
which the restructured budget will in fact reframe budget choices. This
can be true even in cases where restructured budgets are adopted. For
example, although Congress accepted EPA's fiscal years 1999 through 2005
congressional budget justifications, which were structured around its
strategic goals and objectives and changed EPA's reprogramming guidance to
expressly allow funding shifts within strategic objectives, Congress
required that EPA provide program information and continued to set
specific funding levels in committee reports based on programs.3
Appropriations subcommittee staff said that they generally did not use the
performance-based budget to conduct their work but rather the
program-based information they requested from EPA. Although Labor
submitted a
2 Senate Committee on Appropriations Report 108-81, Departments of Labor,
Health and Human Services, and Education, and Related Agencies
Appropriation Bill, 2004 (June 26, 2003), p. 41.
3 According to our analysis, over 50 percent of EPA's budget is dedicated
to specific programs.
Page 94 GAO-05-117SP Performance Budgeting
4.2: Budget Restructuring Requires Sustained Commitment and Leadership
"performance budget" for fiscal years 2004 and 2005, appropriations
subcommittee staff we spoke with said they either relied on the fiscal
year 2003 congressional budget justification to find information they
needed or requested supplemental information from Labor. In short, they
did not generally use the performance-based budget.
Given the differing needs and perspectives of appropriators and agency
officials there may always be some gaps. Therefore, the challenge will be
to seek alternatives beyond and complementary to budget restructuring that
can both provide the information decision makers need and improve the use
of performance information during various stages of the budget process.
Successfully changing appropriations accounts and congressional budget
justifications requires sustained commitment by key decision makers. Most
of our case study agencies had been working on the framework and methods
used to better capture the cost of programs and performance in the budget
for several years prior to proposing appropriations account structure
changes or submitting a restructured congressional budget justification to
Congress. Even after the initial changes, agencies continue to refine the
appropriations account structure and congressional budget justification to
reflect revised strategic plans or address concerns. EPA, for example,
changed its budget framework to reflect changes to its strategic plan. At
the same time, EPA implemented additional changes to improve financial
management. Furthermore, some officials from our case study agencies told
us that it might take time to see the benefits of any changes for
management and oversight. For example, NASA officials said that they began
working on the "full cost" initiative in 1995. The formulation of the
fiscal year 2004 budget was primarily a headquarters exercise and the
fiscal year 2005 budget was the first budget program managers formulated
in "full cost." As a result, according to NASA officials, program managers
have limited experience with budgeting and managing in "full cost," and it
may take a few more years to completely achieve the benefits of "full
cost" management.
Some agencies said that commitment by agency leadership and staff, early
involvement of OMB, and integration of agencies' budget and planning staff
were helpful in their long-term effort to better link resources to
performance in the budget. For example, EPA officials credited their
senior leadership with supporting budget restructuring efforts and
integrating planning and budget staff. Labor and NASA officials reported
4.3: Concerns Raised about Ability of Agencies' Systems to Accurately Link
Budget Resources to Performance and to Track Cost in the New Budget
Structures
that they involved OMB in task forces or decisions related to the design
of restructured budgets. Labor officials said that integrating its budget
and planning staff to provide central coordination, direction, and
planning on department goals and objectives facilitated increased
collaboration between budget and planning staff and supported budget
restructuring. However, while a sustained commitment by agency leadership
and staff appears necessary to advance budget-restructuring efforts, it is
not sufficient.
Structuring budgets to better capture the "full cost" of programs and
performance involves numerous judgments, such as the contribution of
various programs to achieve goals and objectives and the allocation of
resources among these programs and goals. Restructuring budgets to better
align budget resources with programs and performance might provide a more
complete picture of the resources associated with expected results, but
that is dependent on these underlying estimates and assumptions. To the
extent performance and resource allocations are made on an arbitrary or
misleading basis, the new structures cannot be assumed to provide improved
information on the connections between performance and resources.
Questions have been raised about agencies' capacity to
o develop meaningful allocations of resources to program and performance
within the new frameworks,
o track costs within the new frameworks, and
o develop meaningful estimates of the contribution of programs to goals
and objectives within the new framework.
Agency officials and appropriations subcommittee staff we spoke with
raised concerns about the ability of agencies' financial management
systems to accurately allocate budget resources within the performance
framework used to structure appropriations accounts and budget
justifications as well as to adequately track costs. Officials from
several agencies questioned their ability to accurately allocate
resources, including staff time, among programmatic or goal areas. Indeed,
both GAO and inspectors general have reported weaknesses in several of our
case study agencies' financial management systems in providing reliable,
useful, and timely financial information, including cost data.4 Also,
OMB's PART reviews suggest that much work remains to be done in improving
the underlying information, evaluations, and systems within agencies to
support performance goals.5 Some OMB staff said that budget restructuring
would provide a much-needed incentive to address these issues. Officials
from a number of agencies noted that they are in the process of improving
financial management systems or developing managerial cost accounting
systems, which they expected to better inform the estimates used in the
budgets in the future.
Agencies face two broad challenges in seeking to align budget resources to
performance in the budget structure. The first challenge is that unless
each program or activity is linked directly to one and only one goal or
objective, the performance contribution of a program must be allocated
across goals or objectives. This places greater importance on exploring
the analytical linkage between programs and goals. The second challenge is
allocating resources, such as central administration, across goals. If one
VBA staff's salary will be funded from multiple appropriations accounts,
accurate estimates of the amount of time they spend on each program
becomes important. Allocating resources requires establishing a basis on
which to spread resources and having the supporting data to support
allocation estimates. Officials we spoke with used a variety of bases to
allocate resources to programs and performance, ranging from specific
projects, full-time equivalents (FTEs), workload estimates, etc. To the
extent the basis used reflects true resource needs, allocating resources
has the potential to provide more complete information on the resources
associated with programs and performance. If the basis used is arbitrary
or does not reflect true resource use, then information and incentives
will not be improved. The appropriate basis may vary. For example, FTEs
may be an appropriate basis to allocate some resources but not others. An
agency that uses FTEs as a method to allocate publishing costs might
wrongly assume that an office with many FTEs should be allocated a greater
share of publishing resources despite the fact that an office with fewer
FTEs might publish more (or need more expensive types of published
products) and thus have higher publishing costs than the office with more
FTEs.
GAO, Financial Management: FFMIA Implementation Necessary to Achieve
Accountability, GAO-03-31 (Washington, D.C.: Oct. 1, 2002).
5 GAO, Performance Budgeting: Observations on the Use of OMB's Program
Assessment Rating Tool for the Fiscal Year 2004 Budget, GAO-04-174
(Washington, D.C.: Jan. 30, 2004).
Page 97 GAO-05-117SP Performance Budgeting
Regardless of the basis of allocation, the systems and underlying data to
support resource allocation is important for agencies to have. Some agency
officials and congressional staff questioned the ability of agencies'
systems and data to support resource allocation and track costs in new
structures. For example, VA officials explained that VBA staff often
divide their time between administering disability compensation, pension,
and burial claims. Under the current structure, the staff's salary is paid
from the General Operating Expense (GOE) account regardless of which
activities the staff is undertaking. Under the proposed structure, the
staff's salary would be paid from three different appropriations accounts
depending on the activities undertaken. VA officials said that allocating
salaries among the three accounts would be difficult to properly estimate.
Some also expressed concerns about potential difficulties arising from
executing budgets within a structure built from uncertain resource
allocation estimates. Accounting systems and budget execution concerns
have led some agencies to request transfer authority; that is, the ability
to shift resources among appropriations accounts. For example, when it
began allocating administrative resources to its programs in two separate
appropriations accounts, NASA requested and received transfer authority
for administrative expenses between its two appropriations accounts. NASA
officials said this flexibility is needed because of the inherent
difficulty in correctly estimating resource allocations since staff divide
their time among projects. Also, VA requested transfer authority for
administrative expenses to avoid antideficiency violations because
estimation uncertainties exist around separating administrative resources
into multiple program accounts.6 Appropriators did not accept VA's
proposed account structure and so did not provide VA this authority.
Concerns were also raised about agencies' ability to track costs within
the new structure and to provide supplemental cost information by
organizational unit or functional area. For example, VA's budget office
does not track what is spent by strategic goal and objective throughout
the year because its financial system does not track costs in this way;
rather, VA applies assumptions to spread costs among strategic goals and
objectives. Without adequate performance and financial information
systems, agency managers may be unable to accurately track these costs and
help make
6 The Antideficiency Act, among other things, prohibits making
expenditures or incurring obligations in excess of amounts available in
appropriations accounts unless specifically authorized by law.
Page 98 GAO-05-117SP Performance Budgeting
4.4: Budget Restructuring May Be a Long-Term, Iterative Process Requiring
Flexibility to Explore Different Approaches
informed resource management decisions. Although Labor allocates both
direct and indirect resources to performance goals, costs are not tracked
at this level during budget execution, and managers are not bound to spend
the amounts shown for performance goals in the budget justification.
Without adequate performance and financial information, some agency
officials and congressional appropriations subcommittee staff expressed
concerns about moving forward with budget restructuring. For example,
appropriations subcommittee staff we spoke with said that given agencies'
inability to report how funds were being spent in both the previously
established and new performance-based budget structures, the staff were
unwilling to accept proposed budget structure changes.
While there was general agreement among the agency officials and budget
experts we spoke with on the need for integrated financial management
systems that provide reliable and timely information, they expressed
differing views on the extent to which these systems need to be in place
prior to restructuring budgets around programs and performance. Some
agency officials, appropriations staff, and budget experts emphasized the
importance of having integrated financial management systems in place that
can accurately estimate and track spending before proceeding with budget
restructuring. As such, some said that improving performance and cost
information should be the first step, especially given that some
approaches to budget restructuring provide increased managerial discretion
over resource use. Some OMB staff and agency officials, however, expressed
the differing view that requiring budgets to be structured around programs
and performance provides much needed incentives for agencies to address
long-standing financial management issues.
These challenges suggest that budget restructuring may be a long-term,
iterative process requiring flexibility to explore different approaches.
As OMB and agencies have wrestled with the issues described above and the
broader Budget and Performance Integration (BPI) initiative has evolved,
OMB's guidance related to budget restructuring has changed. OMB staff we
spoke with described budget restructuring as a long-term effort requiring
experimentation to determine effective approaches. OMB staff said they
have refined their guidance as they learn more about what is working for
agencies at the forefront of budget restructuring efforts. Moreover, they
said their intention is not to dictate specific approaches. Instead they
want to encourage agencies to change congressional budget
justifications-and in some cases appropriations accounts-to better align
budget resources with programs and performance in ways that meet agencies'
and other users' needs while increasing the information and incentives to
recognize and make resource trade-offs with a focus on results. However,
while experimentation and flexibility may be needed to develop and
implement a complex and evolving initiative, changes in specific guidance
nevertheless may reduce clarity with respect to the objectives of and
steps necessary for budget restructuring as well as the role of budget
restructuring within broader budget and performance integration efforts.
Section 5: Lessons Learned and General Observations
Budget restructuring is one tool that can advance results-oriented
management. However, it involves significant trade-offs between
information provided and accountability frameworks used. Congress, OMB,
and the agencies hold differing views on information and incentives
necessary to support effective decision making and oversight. While
increasing the focus on results in budget decisions is important, recent
efforts to increase the focus in congressional budget justifications have
generally reduced the visibility of other information, such as object
class, workload, and output measures that congressional appropriations
committees consider important for making resource allocation decisions.
The need for workload and output measures for making resource allocation
decisions is not unique to the federal government. State officials
indicated this information is used by legislators in making resource
allocation decisions, as discussed in our most recent review of state
performance budgeting efforts.
The history of budget reform suggests that budget structures will
necessarily reflect multiple perspectives on resource allocation.
Performance goals and planning structures can clearly add value to budget
debates by focusing attention on the broad missions and outcomes that
individual programs and activities are intended to address. However,
budget structures also serve the legitimate role of helping Congress
control and monitor agency activities and spending by fostering
accountability for inputs and outputs within the control of agencies. The
greatest challenge of budget restructuring may be discovering ways to
address these competing values that are mutually reinforcing, not mutually
exclusive.
Budget restructuring has implications for the balance between managerial
flexibility and congressional oversight and control and ultimately the
relationship among the primary budget decision makers-Congress, OMB, and
agencies. Thus, Congress must be considered a partner in this effort.
While congressional buy-in is critical to sustain any major management
initiative, it is especially important for performance budgeting given the
Congress' constitutional role in setting national priorities and
allocating the resources to achieve them. The concerns raised by
appropriations staff suggest that when creating "performance budgets" OMB
and agencies should find ways to tailor the agencies' performance
information to meet those needs and to supplement, rather than replace,
key information used by appropriations committees to make decisions.
Lessons from previous initiatives and agencies' recent experiences suggest
that Congress needs to be comfortable with the appropriateness and utility
of the new budget structures since budget structures fundamentally shape
the focus of appropriations decisions as well as the nature of the
controls through which Congress oversees executive agencies' spending.
Accordingly, if performance goals and measures are to become the basis for
the new budget structures, Congress must view them as a compelling
framework through which to achieve its own appropriations and oversight
objectives. Indeed, GPRA itself was premised on a cycle where measures and
goals were to be established and validated during a developmental period
before they were subjected to the rigors of the budget process.
This suggests that the goal of enhancing the use of performance
information in budgeting is a multifaceted challenge that must build on a
foundation of accepted goals, credible measures, reliable cost and
performance data, tested models linking resources to outcomes, and
performance management systems that hold agencies and managers accountable
for performance. Restructuring appropriations accounts and presentations
to better capture the "full cost" of performance is part of this agenda as
well. However, creating performance budgets without establishing and
validating the requisite foundation and consensus on measures and goals
among primary decision makers will likely not succeed in gaining support
in the budgetary decision-making process.
Going forward, the important goal of infusing a performance perspective
into budget decisions may only be achieved when the underlying supply of
information becomes more credible, compelling, accepted, and used by all
significant decision makers in the system. Indeed, if budget decisions are
to be based on this cost and performance information, there is a more
compelling need to improve the integrity of the data. As OMB's own PART
reviews suggest, much work remains to be done in improving the underlying
information, evaluations, and systems within agencies to support
performance goals. Thus, improving the supply of credible cost and
performance information as well as generating consensus for the goals
themselves are essential parts of a longer-term strategy to infuse
performance into budget decisions.
While some argue that budget restructuring might be necessary to provide
incentives to take the performance goals seriously and improve the
underlying information, our work suggests that restructuring can only take
root once support exists for the underlying performance goals and metrics.
In due course, once the goals and underlying information become more
compelling and used by Congress, budget restructuring may become a more
compelling tool to advance performance budgeting. In other words, the
budget structure will more likely reflect-rather than drive-the use of
performance and cost information in budget decisions.
Appendix I
Objectives, Scope, and Methodology
In this report we refer to budget restructuring as involving both (1)
changes to the structure and format of appropriations accounts and
congressional budget justifications to better align with programs and
performance and
(2) changes to distribution or measurement of certain budget resources to
better capture the cost of those resources where and when they are used.
Although the Office of Management and Budget's (OMB) concept of "full
cost" originally included efforts to change the budgetary measurement of
certain items to better capture "when" they are used, the primary focus of
reform efforts to date and this report has been on changes in alignment of
appropriations accounts or congressional budget justifications and the
distribution of resources within these structures to more completely show
the cost of resources "where" they are used.
Our objectives for this report were to (1) summarize the steps taken by
OMB and selected agencies to better align their budgets with performance
and to better capture the cost of performance in the budget, (2) discuss
the potential implications of these efforts for congressional oversight of
budget resources and executive branch managerial flexibility and
accountability over budget resources, (3) describe the experiences and
implementation challenges associated with these efforts, and, (4) describe
the lessons learned that might be useful in considering future efforts for
linking budget resources to results in the budget. Observations and
lessons learned in this study together with lessons learned from previous
"performance budgeting" initiatives provide insights useful in
consideration of current and future budget restructuring efforts and other
steps to improve the use of cost and performance information in the budget
process.
To address our objectives, we reviewed OMB documents, such as the
President's Management Agenda (PMA),1 Circular A-11,2 as well as
presentations of OMB officials and staff. We also analyzed appropriations
account structures and congressional budget justifications for nine
federal
1 The PMA, by focusing on 14 targeted areas (5 mutually reinforcing
governmentwide goals and 9 program initiatives), seeks to improve the
performance and management of the government.
2 Circular A-11 provides, among other things, guidance on how to
formulate, develop, and submit materials required for OMB and presidential
review of agency budget requests.
Page 104 GAO-05-117SP Performance Budgeting
agencies for mainly the fiscal years 2003 through 2005 budgets.3 For four
of the nine agencies, we conducted more in-depth case studies to gain a
fuller perspective of the potential implications of the budget changes for
executive branch management and agencies' experiences implementing these
changes. For the four case study agencies, we held interviews with agency
officials at various levels of management and with senior staff and budget
examiners from OMB's Resource Management Offices.
Also, to obtain views and gain insight about the potential implications
for congressional oversight of budget resources, we met with House and
Senate majority and minority staff of the appropriations subcommittees
with jurisdiction over some of the nine agencies of our review. We had at
least one interview with appropriations staff for each of our case study
agencies. Furthermore, we reviewed House and Senate appropriations
committees' reports for language about agencies' appropriations account
and congressional budget justification changes.
In addition, we conducted two panel discussions to obtain the views of
officials from our case study and review agencies as well as budget
experts in an interactive setting. We summarized the interviewees' and
panelists' answers, identified recurring themes or observations, and
considered insights provided by previous initiatives to describe the
lessons learned that might be useful in considering future efforts.
In some cases, budget restructuring efforts have only recently been
implemented (and in some cases only in part). Thus, it may be too early to
fully understand both the implications of budget restructuring on
executive branch management and congressional oversight and the
implementation experiences and challenges associated with these efforts.
Also, while we describe the various approaches all nine agencies took, the
approaches should not be directly compared because each agency is
different and may have had different objectives for its budget
restructuring efforts. Comparisons are also difficult because agencies
start with different missions, organizational frameworks, and
appropriations account structures. For example, the National Aeronautics
and Space Administration (NASA) is a research and development agency and
is almost entirely funded by discretionary accounts whereas the Department
3 However, in some cases, agencies began budget restructuring prior to
fiscal year 2004. In those cases, such as the Environmental Protection
Agency (EPA), we looked at earlier account structures and justifications.
Page 105 GAO-05-117SP Performance Budgeting
Methodology for Selection of Agencies
of Veterans Affairs (VA) is funded largely by mandatory accounts. Much of
EPA's work is done with third parties (e.g., contractors and states),
which involves the provision of grants and other pass-through resources to
states, localities, and Indian tribes. Nevertheless, describing efforts
undertaken at a variety of agencies provides a broader look at the
implications of various approaches taken to link resources to performance.
To provide specific information on each of our case study agencies' budget
restructuring efforts, this report includes an appendix for each case
study agency with a more in-depth description of each agency's approach as
well as the benefits and limitations noted by agency officials and OMB
staff we spoke with. In these appendixes, we neither evaluated agencies'
choices nor critiqued their processes. We sent copies of the appendixes
for technical review and comment to officials or staff at our case study
agencies to ensure accuracy of our portrayal of their reform efforts.
Given the objectives and scope of this work, we did not evaluate agencies'
financial systems, the reliability and validity of data underlying
agencies' budget requests, or internal controls related to the general
management of the agencies. We also did not evaluate agencies' strategic
or performance plans or the goals or measures to which agencies tied their
resources. Of necessity, our evidence is largely based on testimonial
evidence from individuals knowledgeable about these efforts. In many
cases, efforts to align budgets with performance efforts are fairly recent
and agencies may not have had time to fully realize the implications of
their approaches. Thus, many agencies provided testimonial information
about the anticipated benefits or limitations of these initiatives rather
than specific examples. Where possible, we corroborate testimonial
evidence with documentary evidence.
We conducted our work from May 2003 through December 2004 in Washington,
D.C. in accordance with generally accepted government auditing standards.
We provided drafts of the report to OMB and the nine agencies in our
review for comment.
To provide an overview of the various budget restructuring efforts
underway in the federal government, we reviewed nine agencies'
appropriations account structures and congressional budget justifications.
To gain a deeper understanding of the implications of agencies' efforts
for managerial flexibility and accountability and implementation
experiences
Page 106 GAO-05-117SP Performance Budgeting
and challenges, we selected four agencies out of the nine agencies for
more in-depth case study review. The four case study agencies are:
1. Department of Labor (Labor),
2. Department of Veterans Affairs (VA),
3. Environmental Protection Agency (EPA),
4. National Aeronautics and Space Administration (NASA).
The five agencies for general review are:
1. Department of Commerce (Commerce),
2. Department of Justice (DOJ),
3. Department of Transportation (DOT),
4. Department of Housing and Urban Development (HUD), and
5. Small Business Administration (SBA).
Agencies were judgmentally selected based on a combination of their scores
for Budget and Performance Integration (BPI) in the Executive Branch
Management Scorecard in the President's fiscal year 2004 budget,4 OMB's
published statements highlighting agencies' progress in this area, and the
types and extent of changes made. The Executive Branch Management
Scorecard is a traffic-light grading system to report how well federal
agencies are implementing the PMA's five governmentwide initiatives. OMB
assesses agency "status" based on the "Standards for Success."5 Under each
initiative, an agency is "green" if it meets all of the standards for
success, "yellow" if it has achieved some but not all of the criteria, and
"red" if it has any one of a number of serious flaws. OMB assesses agency
"progress" on a case-by-case basis against the deliverables
4 Budget of the United States Government, Fiscal Year 2004, Executive
Office of the President, Office of Management and Budget (February 2003),
p. 45.
5 "Standards for Success" were defined by the President's Management
Council and discussed with experts throughout government and academe,
including the National Academy of Public Administration.
Page 107 GAO-05-117SP Performance Budgeting
and time lines established under each initiative that are agreed upon with
each agency. The "Standards for Success" describe expectations for the
extent to which agencies incorporate financial and performance information
into management decisions, the quality of strategic and annual performance
plans, and the ability of agencies to report the "full cost" of
performance goals. We considered agencies receiving higher scores on OMB's
Scorecard, which indicates OMB's assessment of agency efforts in this
area, because they might potentially provide lessons to other agencies. We
also considered the type and extent of budget restructuring. Thus,
agencies that received higher scores and made or proposed more apparent
changes were more likely to be included in our study.
As a starting point, we considered 11 federal departments and agencies out
of 26 receiving scores in the Executive Branch Management Scorecard in the
President's fiscal year 2004 budget for review (see table 9). First, we
considered all agencies that received a "yellow light" for "status" in
BPI.6 Nine of these agencies in total had a "yellow light" in status. We
added to the list 2 agencies that had a "red light" for status because
they were mentioned by OMB in the fiscal year 2004 Analytical Perspectives
as having taken steps toward better capturing the cost of performance in
the budget.
6 At the time of our agency selection, no agency had received a "green
light" for status on the budget and performance integration initiative.
Since then, eight agencies have achieved green lights, including four in
our review-NASA, Labor, DOT, and SBA. All agencies in our review have a
green light for progress.
Page 108 GAO-05-117SP Performance Budgeting
Table 9: Agencies Considered for Review
Yellow light on status Red light on status; efforts highlighted
Environmental Protection Agency Department of Housing and Urban
Development
Department of Commerce Department of Justice
Department of Defense
Department of Labor
Department of Transportation
Department of Veterans Affairs
National Aeronautics and Space
Administration
Small Business Administration
Social Security Administration
Source: GAO analysis of Budget of the United States Government, Fiscal
Year 2004.
For each of these 11 agencies, we then looked more specifically at budget
restructuring efforts to better align budget resources with performance.
We began by reviewing agencies' proposed appropriations account
structures, as shown in Budget of the United States Government, Fiscal
Year 2004-Appendix and agencies' congressional budget justifications. We
identified the type of changes made and reviewed the extent of changes
undertaken. Of the 11 agencies, we identified 9 agencies that made the
most significant changes to their budget.7 Consequently, all 9 of these
agencies were included in our study.
To help select case study agencies from these nine agencies, we divided
the agencies into three general groupings based on the type of changes
made:
(1) those with changes to the appropriations account structure (VA, NASA,
DOJ, DOT); (2) those with changes within the account structure at the
program activity level (EPA, SBA); and (3) those with changes only to the
congressional budget justification (Labor, Commerce, HUD).
Within each category, we then judgmentally selected at least one agency
for case study based on their "status" in the BPI initiative on the
Executive Branch Management Scorecard and then by the extent of their
changes.
7 We eliminated the Department of Defense and Social Security
Administration because we did not identify significant changes to their
appropriations account structure or congressional budget justifications.
Page 109 GAO-05-117SP Performance Budgeting
For example, within the group that made or proposed changes to their
appropriations account structure, we selected two agencies-VA and NASA.
The final selection of agencies for case studies is outlined in table
10.
Table 10: Agencies Selected for Case Studies
Changes to account structure Status/Reason
Department of Veterans Affairs Selected for case study
National Aeronautics and Space Selected for case study
Administration
Department of Justice Not selected for case study/Red light
in
status
Department of Transportation Not selected for case study/Proposed
account structure changes not
agencywide
Changes within account structure to
program activities
Environmental Protection Agency Selected for case study
Small Business Administration Not selected for case study/Based on
preliminary review it appeared that
EPA had
made more significant changes
Changes to congressional Status/Reason
justification
only
Department of Labor Selected for case study
Department of Commerce Not selected/Based on preliminary
review it
appears that Labor had made more
significant changes
Department of Housing and Urban Not selected/Red light in status
Development
Source: GAO.
As discussed previously, we conducted a general review of the five
agencies not selected for a case study.8 Because we reviewed only a subset
of agencies, our study does not provide a complete view of all budget
restructuring efforts underway in the federal government. Likewise, our
findings are not generalizable to all federal agencies. However, we
believe our observations apply more broadly across the federal government
given their congruence to previous work
8 For HUD, we only reviewed its fiscal year 2004 budget because it did not
submit a "performance budget" to Congress for fiscal year 2005.
Page 110 GAO-05-117SP Performance Budgeting
Methodology for Agency and Congressional Interviews
done by GAO and others examining budget and performance integration
efforts.
To gain information and insights on the rationale for budget
restructuring, the role the budget plays in broader efforts to improve
management, the perceived benefits and limitations of budget changes for
agency management, and the implementation issues associated with budget
changes, we met with agency officials who were responsible for designing
and implementing budget changes, including those responsible for
presenting the changes to Congress. These same officials were also able to
generally describe how budget restructuring had affected or was expected
to affect agency management. To get a broader perspective on the potential
implications of the budget changes for different levels of management, we
met with program managers at three different program-level offices within
each case study agency. For our study, program managers are defined as
those below the department level (for VA and Labor) or headquarter level
(for NASA and EPA) who are responsible for formulating and executing a
program's budget. Specifically, we spoke with directors and officers for
budget, planning, and finance. These officials described generally how
budget restructuring had affected or was expected to affect resource
management.
To select the program managers to interview, we mainly relied on
department or headquarter budget officials' referrals. At each entrance
conference, we asked agency officials to identify programs or program
managers who could describe how the budgetary changes have affected
program management. We indicated that it would be beneficial to talk with
officials who could speak about how budgetary changes were implemented and
how management has changed (i.e., experience with the budget before and
after budget restructuring). In cases where examples were provided in
initial interviews, we requested that we interview the related program
officials.
We also met with an OMB official and some staff to discuss OMB's overall
objectives and vision for budget restructuring efforts. To discuss the
potential implications for management and oversight at individual
agencies, we met with senior staff and program examiners from OMB's
Resource Management Offices responsible for our case study agencies.
To discuss the potential implications for congressional oversight, we met
with some House and Senate majority and minority appropriations
Methodology for Panel Discussions
subcommittee staff responsible for our case study agencies and in some
cases, general review agencies. Although we attempted to meet with as many
congressional appropriations committee staff as possible, given our time
frames, the congressional schedule, and the schedules of appropriations
staff, we were not able to interview all relevant staff. We contacted a
majority and minority staff member from each of the House and Senate
appropriations subcommittees with jurisdiction over our case study
agencies (NASA, VA, EPA, and Labor), and interviewed 10 staff members on
the House and Senate appropriations subcommittees responsible for our case
study agencies (7 majority staff and 3 minority staff). In addition, we
discussed two of our general review agencies-HUD and DOT-with
appropriations staff.
For each set of interviews, we developed a standard list of questions;
however, we did not perform structured interviews. We tailored the
questions to each agency because each case study agency had different
objectives and took different approaches to this initiative. To the extent
possible, we obtained supporting information, such as internal budget
guidance and financial management guidelines, to corroborate testimonial
evidence. We summarized the interviewees' answers and identified recurring
themes or observations for our analysis.
To discuss the conceptual benefits and limitations of budget restructuring
in an interactive setting, we conducted two panel discussions, on November
12, 2003, and December 18, 2003, at GAO. We invited officials from each of
the nine agencies we reviewed to attend each panel. Out of the nine agency
officials we invited, eight participated.9 To help contribute to
identifying and assessing the implications of budget restructuring for
management and oversight, we included two federal budget experts in each
panel. We judgmentally selected four experts who provided expertise in
wide-ranging budget and management issues in both the executive and
legislative branches.
Prior to the panel meeting, each participant received a short summary of
approaches agencies have taken to link resources to results in the budget
as well as the list of questions to be discussed at the panel so they
would be aware of our interests and be better able to provide us, where
possible,
9 Due to scheduling conflicts representatives from SBA did not attend the panel
sessions.
Page 112 GAO-05-117SP Performance Budgeting
with specific examples. Specifically, we asked panel participants to
discuss: (1) the extent to which the previous budget structure and/or
presentation impeded efforts to improve management and performance,
(2)
the objectives in making budgetary changes, (3) the rationale and
the trade-offs agencies faced in determining the approach taken,
and
(4)
specific examples of advantages and disadvantages budget
restructuring had in terms of the information and incentives
provided for strategic and day-to-day management and the agency's
ability to communicate to Congress and OMB how resources tie to
the agency's mission and strategic direction. The panels were
intended to supplement information gathered in interviews. As with
our interview summaries, we summarized the panel discussions to
identify general themes or observations that emerged.
Appendix II
Department of Labor
Background
The Department of Labor (Labor) submitted its first integrated
"performance budget" for fiscal year 2004, building on earlier efforts to
better incorporate budget and performance in its performance plans and
financial statements. Labor introduced uniform changes to its fiscal year
2004 congressional budget justification aimed at more directly linking
budget resources to performance but did not make changes to its
appropriations account structure. Within its congressional budget
justification, Labor now presents the "total budgetary resources"1 for
each program and the supporting performance goals. Labor officials we
spoke with said they anticipate that these changes will support increased
use of performance and cost information in decision making, but they also
noted some areas for improvement and limitations.
Labor describes its mission as assisting job seekers, wage earners, and
retirees by providing for better working conditions, increasing training
and employment opportunities, securing benefits, improving free collective
bargaining, and tracking national economic measurements. Labor is composed
of 15 major bureaus and offices2 and employs over 17,000 staff. The
department's fiscal year 2005 budget request was approximately $57.3
billion. Of this amount, approximately $17 billion is subject to the
congressional appropriations process. The remaining $40 billion is
permanent authority, which is under the jurisdiction of authorizing
committees.
Labor's strategic management framework is structured around four strategic
goals-(1) a Prepared Workforce, (2) a Secure Workforce,
(3) Quality Workplaces, and (4) a Competitive Workforce-and supporting
1 Term used by Labor in its fiscal years 2004 and 2005 congressional
budget justifications. "Total budgetary resources" includes direct program
funds, other funds appropriated within Labor (e.g., IT crosscut, legal
services, and other indirect costs) and additional other resources
available (e.g., reimbursements and user fees) associated with a
particular program or project.
2
Labor's bureaus and offices are the Employment and Training Administration
(ETA), the Employee Benefits Security Administration (EBSA), the Pension
Benefit Guaranty Corporation (PBGC), the Employment Standards
Administration (ESA), the Occupational Safety and Health Administration
(OSHA), the Mine Safety and Health Administration (MSHA), the Bureau of
Labor Statistics (BLS), the Office of the Solicitor, Bureau of
International Labor Affairs, Office of the Assistant Secretary for
Administration and Management, Women's Bureau, Office of the Chief
Financial Officer, Veterans' Employment and Training Service, Office of
Disability Employment Policy, and Office of the Inspector General.
outcome and performance goals. Below this level, some bureaus have
additional, bureau-specific performance goals and may subdivide
departmental performance goals into bureau-specific performance goals. For
example, ESA's Wage and Hour Division further breaks down the departmental
strategic goal for a secure workforce into three bureau-specific
performance goals. Figure 6 provides an example of this framework using
Labor's Strategic Goal 2, a Secure Workforce.
Figure 6: Example of Labor's Strategic Framework
Source: GAO analysis based on U.S. Department of Labor FY2005 Performance
Budget.
Within this framework, strategic goals may cross bureaus (e.g., ETA and
ESA support the Secure Workforce strategic goal) and bureaus may support
multiple strategic goals (e.g., ETA supports three strategic goals: a
Prepared Workforce, a Secure Workforce, and a Competitive Workforce).
Generally, programs and performance goals align with bureaus and
performance goals are associated with a particular program or activity.
However, in some cases, multiple programs within a bureau support the same
performance goal or goals. For example, all seven of OSHA's budget
Objectives and Implementation Time Line
activities support the same two performance goals.3 As discussed in
section 4 of the report, when there are multiple contributors and funding
streams to strategic goals and objectives, determining the performance
contributions of programs to goals or objectives within the new budget
structures is challenging.
Labor officials described the objectives of Labor's most recent efforts to
link resources to performance as providing better cost and performance
information to users of the budget, including Congress and executive
branch management, to improve decision making. Labor focused on providing
better information in the congressional budget justification about the
department's goals and the budget resources needed to achieve them.
Changing managerial flexibility over budget resources was not one of
Labor's objectives since this type of flexibility already exists in the
form of reprogramming and transfer authorities. According to Labor and OMB
officials, the current appropriations account structure adequately aligns
its budget resources with the department's management and performance
structure at this time. Labor's appropriations account structure is
organized around bureaus with a separate departmental administrative
account, which, according to Labor officials, generally reflects the
manner in which Labor conducts its business. Five of Labor's seven bureaus
are funded through single appropriations accounts4 and Labor's
reprogramming unit-"programs, activities, or elements"-is generally tied
to its budget activities, which reflect direct and indirect program
activities.
Labor officials and program managers we spoke with said this
appropriations account structure provides them sufficient flexibility over
budget resources. For example, BLS officials said each of their budget
3 The two performance goals are: (1) by 2008, reduce the rate of workplace
fatalities by 15 percent from the baseline; and (2) by 2008, reduce the
rate of workplace injuries and illnesses by 20 percent from the baseline.
4 BLS, EBSA, PBGC, OSHA, and MSHA are all funded through a single Salaries
and Expense (S&E) appropriations account. Although ESA is funded through
eight appropriations accounts-S&E, Special Benefits, Energy Employees
Occupational Illness Compensation Fund (EEOICF), Administrative Expenses
for EEOICF, Special Benefits for Disabled Coal Miners, Panama Canal
Commission Compensation Fund, Black Lung Disability Trust Fund, and
Special Workers' Compensation Expenses-ESA's primary administrative
functions are funded through the S&E account. ETA, however, is funded
through multiple accounts, with a separate program administration account.
Labor's Efforts Have Progressed Over Several Years and Have Involved Staff
Integration
activities (e.g., Labor Force Statistics, Prices and Cost of Living)
contains the resources (e.g., data processing, analytic work, information
technology (IT), field support) program managers need to manage
effectively and they have sufficient flexibility to make resource
trade-offs within each program. Similarly, ESA officials said they have
sufficient flexibility to move resources within their five program
activities (e.g., Enforcement of Wage and Hour Standards, Federal Programs
for Workers Compensation) and rarely need to shift resources among them.
While ETA officials noted that the structure of their program activities
within their appropriations account structure is not as flexible as they
would like for program management, they said their appropriations account
structure, in conjunction with existing reprogramming and transfer
authorities, generally provides the flexibility they need to manage
effectively.5
Labor's efforts to link budget resources and performance in the budget
progressed over the last several years, building on earlier efforts to
better link resources to performance in its performance plans and
financial statements. Figure 7 presents a time line of Labor's key efforts
to link resources with performance. As the figure shows, Labor began
linking budget resources to its strategic goals in its fiscal year 1999
Annual Performance Plan. Parallel to this effort, Labor began linking
resources6 to strategic and performance goals in its fiscal year 1999
financial statements. For its fiscal year 2002 Annual Performance Plan,
Labor went further by tying budget resources to its 10 outcome goals, the
level below strategic goals. For its fiscal year 2004 congressional budget
justification, Labor took steps to shift the focus of its congressional
budget justification from a process orientation to a performance
orientation and, for the first time, to link "total budgetary resources"
to its programs as well as strategic and performance goals within the
congressional budget justification itself.
5 ETA officials said that consolidating their program activities, which
are generally organized by population (e.g., Youth Activities, Adult
Activities), would provide them with more flexibility to make trade-offs
and better serve different populations.
6 Labor provides net costs, which are calculated on an accrued basis, to
outcome goals in its financial statements. Resources are defined
differently for financial management purposes than for budget purposes.
Page 117 GAO-05-117SP Performance Budgeting
Figure 7: Labor's Implementation Time Line
Mid-1990s FY1998 FY2000 FY2001 FY2002 FY2003
Integrated Issued Submitted Created Submitted
budget Submitted FY1999 the Center first
and planning FY1999 financial FY2002 for Program, "performance
staff Annual Annual
within the Performance statements Performance Planning, budget" for
Office of in and FY2004
the Assistant Plan in which Plan in Results to linking
which resources which resources to
Secretary for resources were resources coordinate strategic
were linked to were and
Administration linked to outcome linked to department's performance
and goals goals
Management strategic (level outcome strategic
goals below goals
strategic planning
goals) efforts
Summary of Labor's Budget Restructuring Approach
Source: GAO analysis.
To put a more direct focus on results, in fiscal year 2002 the Center for
Program Planning and Results (CPPR) was established within the Office of
the Assistant Secretary for Administration and Management. According to
Labor officials, establishing the CPPR while maintaining close integration
with the Departmental Budget Center has allowed Labor to more effectively
provide central coordination, direction, and planning on departmental
goals and objectives and implement the President's Management Agenda
component of the Budget and Performance Integration initiative.
Both OMB and Labor officials and staff said the department collaborated
with OMB to determine how to change the congressional budget
justification. Labor convened a task force that included OMB staff and
budget and planning staff from key bureaus within Labor. Another key
player in implementing these budgetary changes was the department's
Management Review Board (MRB), which oversees Labor's efforts under the
President's Management Agenda. The MRB periodically meets with OMB
leadership and is the overall steering committee for Labor's Budget and
Performance Integration efforts.
As noted, Labor made changes to its congressional budget justification,
but did not make departmentwide appropriations account structure changes.
Labor's congressional budget justification changes did not change the
framework for either its transfer authority and reprogramming guidelines
or its internal control of funds. For cost allocation, Labor uniformly
Page 118 GAO-05-117SP Performance Budgeting
Congressional Budget Justification Changed to Better Link Budget Resources
to Performance, but No Department-wide Changes Made to Appropriations
Account Structure
defined "total budgetary resources." Bureaus had some discretion over
determining how to allocate costs.
Labor redesigned the presentation of its fiscal year 2004 congressional
budget justification to better link "total budgetary resources" to its
programs and its strategic and performance goals. Labor continued this
basic format in fiscal year 2005 with only minor refinements. Labor's
efforts focused on three areas within its congressional budget
justification. First, Labor replaced narrative that focused only on tasks
with narrative that related tasks or activities to outcomes and results.
Second, "total budgetary resources," including indirect costs (e.g.,
program administration), were shown with the programs they support,
whereas in the past only some portion of indirect costs was shown with
programs. Third, steps were taken to link "total budgetary resources" to
strategic and performance goals. Labor officials said these changes were
aimed at providing a more complete picture of the department's objectives
and the budgetary resources associated with programs and supporting
performance goals.
Beginning in fiscal year 2004, Labor began replacing task-oriented
narrative with information explaining the relationship of those tasks or
activities to anticipated outcomes and results in its congressional budget
justification. Labor formatted its congressional budget justification
around the appropriations account structure (basically, each bureau or
agency) and added a departmental overview section to bring every agency's
programs and resources together, depicting at a higher level the
department's intended performance and its resources. The departmental
overview outlines the Secretary's vision for the department; lays out the
department's strategic, outcome, and performance goals; and includes the
budget resources requested to achieve its strategic goals. Bureau
"performance budgets" include appropriations account information,
strategic and performance goal information, and justifications for "budget
activities" funded by those accounts. "Budget activities" are generally
direct and indirect program activities one level lower than the bureau
level. In each budget activity section, Labor provides a performance
summary with the stated performance goal and past and planned performance,
as well as critical strategies to meet those goals. However, according to
Labor officials, to maintain the approximate size of the budget document,
some previously reported information was eliminated. For example, 5-year
funding histories were provided at the appropriations level but were no
longer included with every budget activity, and some previously provided
program-specific information was eliminated, such as Job Corps
construction costs. According to Labor officials, since the submission of
the fiscal years 2004 and 2005 budget justifications, they have worked
with congressional appropriations committee staff to address any concerns
about the elimination of program-specific information. They said several
exhibits have been reinstated in the fiscal year 2006 "performance
budget," including the 5-year funding histories.
Under the new format, Labor shows direct and indirect budget resources
associated with programs. The section for each program in the bureau's
"performance budget" includes a table that links direct and indirect
resources to programs. Table 11 shows budget resource tables provided in
the fiscal year 2005 congressional budget justification for the Job Corps
7
program. To provide a more complete picture of resources associated with
the Job Corps program, the fiscal year 2005 table shows not only the
direct program appropriation, but also indirect resources including
Program Administration and Reimburseable. For example, the fiscal year
2005 table provides an estimate of approximately $29 million for program
administration and $4 million for reimburseable-figures not provided with
the Job Corps budget request prior to the fiscal year 2004 congressional
budget justification. Resources included in the "Program Admin" row are
appropriated in a different appropriations account than the other Job
Corps program resources and are also presented elsewhere in the
congressional budget justification.
7 The fiscal year 2005 congressional budget justification followed the
same general structure as the fiscal year 2004 justification.
Page 120 GAO-05-117SP Performance Budgeting
Table 11: Resource Table Presented in the Fiscal Year 2005 Congressional
Budget Justification for Job Corps
Fiscal year 2005 Difference fiscal
Fiscal year 2004 estimate year 04/05
Job Corps $1,557,287 $20,213
Program admin. Dollars in $28,670 $1,537,074 $29,496 $826
thousands appropriation
Reimbursables $4,000 $4,000 $0
Total resources $1,569,744 $1,590,783 $21,039
FTEa 187 187 0
Source: Department of Labor's Fiscal Year 2005 Performance Budget.
aFull-time equivalent
The new congressional budget justification format also provided more
information on the budget resources associated with strategic and
performance goals. In the overview section of the congressional budget
justification as well as each bureau "performance budget," Labor links
budget resources to strategic goals. Beginning in the fiscal year 2004
congressional budget justification, each program budget request includes
information on the budget resources of associated performance goals. Table
12 presents a "performance goal cost allocation summary" from the fiscal
year 2005 congressional budget justification for the Job Corps program
performance goal, "to improve educational achievements of Job Corps
students, and increase participation of Job Corps graduates in employment
and education." The summary shows budget resources associated with the
performance goal listed not only by appropriations (program appropriation,
other appropriation, and other resources), but also by cost type (direct
and indirect). The links between programs, performance goals, and Labor's
strategic goals are presented in an appendix to each bureau's "performance
budget."
Table 12: Performance Goal Cost Allocation Presented in the Fiscal Year
2005 Congressional Budget Justification for Job Corps
Performance Goal 1.2Ba Cost Allocation Summary
Cost (by type of appropriation)b Cost (direct and indirect)c
Resources in 000's Resources in 000's
Job Corps Direct cost of all appropriation $1,557,287 outputs $1,585,682
Other Indirect cost appropriation: PA $29,496 $5,101
Other resources: Common Reimbursements Administrative $4,000 Systems N/A
Total resources Total resources for goal $1,590,783 for goal $1,590,783
Source:Department of Labor's Fiscal Year 2005 Performance Budget.
aPerformance goal 1.2B is "To improve educational achievements of Job
Corps students, and increase participation of Job Corps graduates in
employment and education." Labor does not list this definition with this
table, but rather it is listed elsewhere, such as the budget activity
narrative.
bLabor uses the following definitions:
Direct Appropriation: Resources directly attributable to a program
activity, such as employee salaries and travel.
Other Appropriation: Resources appropriated elsewhere, but whose benefits
accrue toward the operation of the budget activity. Examples include
departmental administration, IT Crosscut, and legal and adjudication
services.
Other Resources: Resources available for a budget activity, but not
appropriated. Examples include reimbursements and fee collections.
c See table 13 for definitions and examples of direct and indirect costs.
While the new congressional budget justification is aimed at providing a
more complete picture of both total budget resources associated with
goals, these changes were primarily presentational and it was not intended
that managers be required to execute their budgets based on the
allocations made to goals. No departmentwide changes associated with
linking resources to performance were made to the appropriations account
structure or within the structure to the program activity listing in the
P&F
"Total Budgetary Resources" Is Uniformly Defined at Labor but Bureaus Have
Discretion Determining How to Allocate Costs
schedule of the President's Budget Appendix for Labor.8 In addition, no
changes were made to transfer authority, reprogramming guidelines, or
internal control of funds. Both Labor and OMB officials and staff told us
that it was not necessary to make departmentwide appropriations account
structure changes at this time because the current structure adequately
reflects the manner in which Labor conducts its business and managers have
sufficient flexibility over resources to manage their programs.
Labor defined "total budgetary resources" uniformly across the department
by issuing guidance on which categories of cost to be included. Labor
defined three main cost categories: "Direct," "Indirect," and "Common
Administrative Systems," as shown in table 13. A fourth category, "Other
Program Mandates," which included costs not included in the previous three
categories, was not allocated to performance goals or programs because,
according to Labor, those costs were not associated with current
performance goals. These costs were allocated to strategic goals (e.g.,
unemployment benefits).9
Labor does not allocate certain departmental costs (e.g., the Office of
the Secretary, Office of the Chief Financial Officer, Office of the
Assistant Secretary for Administration and Management, some information
technology expenses, and program evaluation) to performance goals and
programs. Although Labor officials said they are working toward allocating
more resources in future iterations of the "performance budget,"
8 While no departmentwide appropriations account structure changes were
made, the Pension Benefit Guarantee Corporation (PBGC) made and the
Employment Training Administration (ETA) proposed to make some account
structure changes. For example, in fiscal year 2004, the PBGC divided the
"Services related to terminations" program activity into "Pension
insurance activities" and "Pension Plan terminations" to more accurately
reflect their business activities within its PBGC Fund appropriations
account. ETA proposed to consolidate Adult, Dislocated Worker, and
Employment Service State Grants within the Training and Employment
Services appropriations account. This corresponds with the changes to
authorizing legislation being proposed by the administration to
consolidate these programs into a single block grant.
9 Labor directed bureaus to include the budget authority and FTE for all
other administrative or program costs not captured in program and
performance goal resource tables in "Other Program Mandates." This
category replaced the category, "Mission Critical," which Labor used for
the fiscal year 2004 congressional budget justification. Labor defined
"Mission Critical" as "the budget authority and FTE for the remainder of
the budget activity, i.e., those resources not specifically identified
with a performance goal."
they and OMB staff cautioned that allocating some costs with non-material
amounts could be of limited benefit.
Table 13: Labor's Main Cost Categories: Definitions and Examples
Cost category Definition Examples
Direct Costs that can be Adult Activities program
identified
specifically with a grant dollars received
particular by
final cost objective states
Indirecta Costs that are (a) incurred Departmental management,
for a common or joint legal, working capital
fund
purpose benefiting more
than one cost objective,
and
(b) not readily assignable
to
the cost objectives
specifically benefited
Common Administrative Costs that cut across the IT crosscut and legal
and
Systems department adjudication services
Source: GAO analysis of internal Labor guidance.
a Internal Labor guidance states that indirect costs are generally
allocated by direct program funding or FTE.
While Labor uniformly defined "total budgetary resources" and issued
guidance on which cost categories to include, bureaus have discretion in
determining the appropriate method to allocate departmental and
bureau-level costs to programs and performance goals. Labor centrally
allocated Common Administrative Systems-costs such as legal and
adjudication services that cut across the department-to bureaus according
to standardized methods. Although bureaus were not able to negotiate
departmental allocations, they did have discretion over how to allocate
these costs within the bureau. Labor officials explained that one bureau's
portion of Common Administrative System resources might only apply to a
specific program within the bureau (i.e., legal costs might only apply to
the enforcement program of an enforcement agency), in which case 100
percent of those funds would be applied to that program. In contrast,
another bureau's portion of Common Administrative Systems might apply to
two or more of its programs or budget activities, requiring the costs to
be spread among them, as appropriate. For example, while ESA allocated its
share of departmental costs to each of its program activities (e.g.,
Enforcement of Wage and Hour Standards), ETA allocated those costs only to
its Apprenticeship Training, Employer and Labor Services program activity
within its program administration appropriations account. Labor officials
said that they did this because, in their view, it did not make sense to
allocate relatively minor departmental costs among appropriations accounts
and program activities.
How bureaus allocate bureau-level costs also differs. For example, ESA
allocated bureau-level administrative costs to its four program activities
based on FTEs. BLS allocated IT costs based on number of users (e.g., LAN
support based on number of personal computers and servers in the system
for a particular program) and bureau administrative costs based on FTEs.
While bureaus' cost-allocation methods vary, the methods most commonly
used are direct funding and FTEs. Labor officials also noted that
standardized methods for allocating costs might not be appropriate-even
for agencies that serve similar goals-because each bureau is unique.10
Labor officials highlighted several benefits resulting from the new
congressional budget justification. They credited the changes with
(1) providing better information on the "total budgetary resources"
associated with programs and performance goals, (2) prompting increased
attention to overhead costs, and (3) helping increase the focus on
performance. However, the officials we spoke with also noted some areas
for improvement and limitations.
Agency Views on Implications of Budget Restructuring for Management and
Oversight
Labor Officials Viewed Congressional Budget Justification Changes as
Providing More Complete Information on "Total Budgetary Resources"
Associated with the Department's Programs and Goals
Labor officials said that the new budget presentation provides a more
complete picture of the budget resources associated with programs and
strategic and performance goals. In their view, because both direct and
indirect costs are presented with programs and performance goals, budget
users should be better able to understand the relationship between
performance and budget resources and thus, make decisions based on more
complete information. For example, Labor officials said that showing
direct and indirect costs gives more insight into the relationship between
program administration costs and goals associated with program delivery.
Labor officials further explained that looking at administrative resources
associated with their programs helped ETA create a system that is less
"siloed" and can serve multiple populations more efficiently because
redundant administrative costs could be redirected to program delivery.
10 However, if using common measures across government, Labor officials
said that "full cost" should be consistently applied.
Page 125 GAO-05-117SP Performance Budgeting
Labor Officials Credited Congressional Budget Justification Changes with
Prompting Increased Attention to Overhead Costs
ETA proposed to consolidate programs, such as the Adult and Dislocated
Worker Grants programs, into the larger portfolio of Workforce Investment
Act training programs. This legislative proposal focused on creating a
system that wasn't "stovepiped" and creates one pot of money to serve
multiple populations. ETA proposed an appropriations account structure
change to accommodate the proposed policy and authorization change.
Generally speaking, however, Labor officials and program managers
cautioned that it is still too early to fully understand how program
managers might use information provided under the new budget presentation
to improve decision making.
According to Labor officials we spoke with, changes in the budget
presentation have increased the attention given to overhead costs. Some
Labor officials and program managers noted that because these overhead
costs are allocated to programs, managers have begun to pay more attention
and raise questions about these costs. For example, BLS officials said
they have been holding annual meetings with program managers to justify
bureau-level overhead allocations.11 Officials said some allocations, such
as retirement, are fixed, while others, such as new bureau-level
initiatives, may be questioned by program managers. In a specific example,
BLS officials told us that prior to showing total budget resources,
recruiting efforts were decentralized; both programs and bureau-level
staff were conducting similar recruiting efforts without coordination,
leading to inefficiencies. According to BLS officials, the charge for
bureau-level recruiting costs led bureau and program managers to better
coordinate and eliminate duplicative efforts.
Congressional Budget Justifications Changes Credited with Helping Increase
Focus on Performance
According to Labor officials, because budget resources must be tied to
performance goals and program managers need to justify their programs in
terms of their contribution to the department's strategic goals, the
congressional budget justification changes have increased managers' focus
on the department's performance framework. Labor officials said they
believe this effort has increased the attention managers give to
performance issues when preparing their budgets and hoped the change
11 Although this process was initiated in BLS prior to the fiscal year
2004 performance budget, it is nonetheless worth noting that the
allocation of indirect resources to programs and performance has led to
discussion among the bureau and program managers over proper cost
allocations.
Page 126 GAO-05-117SP Performance Budgeting
Some Labor Officials Noted Limitations of the Congressional Budget
Justification Changes
will continue to increase the dialogue between bureau-level planning and
budgeting staff on performance issues. For example, ESA officials credited
the link between the congressional budget justification and performance
goals with supporting the development of better, outcome-based performance
goals in the bureau's Wage and Hour Division.12 OSHA's performance budget
narrative also suggests that Labor's new integrated budget and performance
justification led to the bureau developing new performance goals.
While Labor officials pointed out several benefits as discussed above,
some areas for improvement and limitations related to the congressional
budget justification changes were also noted. Some program managers
questioned the value of showing indirect costs-for which they don't have
control-for improving program management and noted it is not particularly
useful to know their share of the department's resource allocation.13
Other officials said that, in some cases, knowing the usefulness of total
budget resource information depends on the nature of a program's
activities, and the added value of allocating certain costs should be
considered. For example, the department allocates a share of its central
legal costs (Solicitor's Office and Legal and Adjudication costs) to each
bureau to provide a better picture of the budget resources used by each
bureau. BLS officials said that because of the nature of their operations
as a data collection organization and the relatively minimal legal costs
they incur, it might not be as critical for them to know the legal costs
associated with its programs. In contrast, they said that bureaus such as
OSHA and MSHA, designed for regulatory purposes with relatively high legal
costs, might find such information more useful. However, in bureaus such
as BLS, legal costs are negligible as compared with enforcement agencies
such as OSHA and MSHA where legal costs contribute significantly to the
cost of doing business.
12 The two new goals were "Improving Customer Satisfaction by Decreasing
the Average Number of Days to Conclude a Complaint" and "Ensuring Timely
and Accurate Prevailing Wage Determinations." Wage and Hour Division
officials also credited PART with the development of these goals.
13 BLS officials did say that knowing their allocation of the department's
Working Capital Fund (WCF) may be useful for future budget planning
because program managers can plan for the resources they will require. The
WCF includes financial and administrative services, field services, human
resource services, and telecommunications, as well as an investment in
reinvention fund and non-Labor reimbursements.
In addition, program officials noted that the provision of total budget
resources in the congressional budget justification might not provide the
detailed cost information they need to improve program management. For
example, some bureau officials said the new budget presentation does not
provide unit and output/outcome cost information, such as cost per program
participant, which they say is an important factor in providing more
effective program management. Although this information might be available
elsewhere in the agency.
Moving into the future, Labor officials said the department plans to
Future Direction
continue to use an incremental approach to link resources to performance
in the budget to ensure that the choices it makes are useful for the
department and acceptable to Congress. The department is focusing its
current efforts on refining the allocation of resources to programs and
performance. Labor officials added that another key and complimentary
effort is the development of a cost accounting system, which they said
could improve the budget process, resource allocation, and program
management.
Appendix III
Department of Veterans Affairs
The Department of Veterans Affairs (VA) budget restructuring efforts are
intended to meet multiple objectives, including better positioning VA to
more effectively evaluate program results and allowing managers to more
readily recognize and make resource trade-offs. Beginning with the fiscal
year 2004 budget, VA proposed changes to its appropriations account
structure and made corresponding changes to the organizing framework of
its congressional budget justification to more readily show the "full
cost" requested for its nine major programs. VA also showed the budget
resources associated with its strategic goals and objectives in its
congressional budget justification and integrated its annual performance
plan into its congressional budget justification. VA's proposed account
structure for fiscal years 2004 and 2005 was not accepted by Congress.
While some VA officials credited budget restructuring with providing a
more complete picture of total program resources and helping to highlight
resource trade-offs, some said that the proposed account structure might
reduce flexibility to respond to changing needs and create budget
execution difficulties. Some VA officials said that budget restructuring
did not provide information they consider most useful to improving
management and oversight.
VA's mission is to serve America's veterans and their families by assuring
Background
that they receive medical care, benefits, social support, and lasting
memorials. VA is one of the world's largest health care, medical research,
and insurance benefits organizations and is divided into three
administrations: the Veterans Health Administration (VHA), the Veterans
Benefits Administration (VBA), the National Cemetery Administration (NCA),
and the staff offices of VA's central office. VHA is responsible for
providing medical care, educating health care professionals, conducting
medical research, and serving as a resource in the event of a national
disaster or national emergency. VBA administers six programs: Disability
Compensation, Pensions, Insurance, Education, Housing, and Vocational
Rehabilitation and Employment (VR&E). VBA administers the monetary
benefits and burial flag portions of the burial program, but NCA is
responsible for the operations and maintenance of veterans' cemeteries and
administers the grant program for aid to states in establishing,
expanding, or improving state veterans' cemeteries. VA's budget is split
between mandatory (e.g., disability compensation benefits, pension
benefits) and discretionary (e.g., medical care, construction, program
administration) spending. For fiscal year 2005, VA requested a budget of
approximately $67.7 billion-$35.6 billion in mandatory spending and $32.1
billion in discretionary spending.
Objectives and Implementation Time Line
VA has five strategic goals-four mission-related goals and one
administrative goal. Within each strategic goal there are three to five
strategic objectives, which are supported by one or more of VA's major
programs. Table 14 uses the strategic goal to restore the capability of
veterans with disabilities to provide an example of VA's strategic
framework. Within this goal there are four strategic objectives supported
by one or more programs.
Table 14: Example of Relationship between VA's Strategic and Programmatic
Frameworks
Strategic goal 1: Restore the capability of veterans with disabilities to
the greatest extent possible and improve the quality of their lives and
that of their families
Strategic objectives Programs
1.1: Maximize the physical, mental, and Medical Care social functioning of
veterans with Medical Research disabilities and be recognized as a leader
in the provision of specialized health care services.
1.2: Provide timely and accurate decisions Compensation on disability
compensation claims to Staff Offices improve the economic status and
quality of life of service-disabled veterans.
1.3: Provide all service-disabled veterans Vocational Rehabilitation and
Employment with the opportunity to become employable and obtain and
maintain suitable employment while providing special support to veterans
with serious employment handicaps.
1.4: Improve the standard of living and Education income status of
eligible survivors of Insurance service-disabled veterans through
Compensation compensation, education, and insurance benefits.
Source: Department of Veterans Affairs, FY2005 Budget Submission: Summary Volume
4 of 4 (February 2004).
VA said the budget structure changes are intended to better position VA to
more readily determine the "full cost" of each program and thereby help VA
more effectively evaluate program results. VA officials said they also
anticipate that budget restructuring would allow managers to more readily
recognize and make trade-offs between resources, for example between
capital and operating expenses. Lastly, some VA officials said VA's
Page 130 GAO-05-117SP Performance Budgeting
proposed budget structure will provide Congress and the American public a
better understanding of what VA does.
VA's budget restructuring efforts have been underway for quite some time,
as shown in the time line in figure 8. According to VA officials, VBA
began aligning budget resources, including indirect resources such as
administration, with its major programs for presentational purposes in its
fiscal year 1996 congressional budget justification. In 1998, VA and the
Office of Management and Budget (OMB) established a joint working group,
including the budget and finance staff from VA's central office and
administrations, to identify options for account restructuring to bring
about a closer connection between resources and results. VA submitted the
Annual Performance Plan volume as a separate volume of its congressional
budget justification for the first time for fiscal year 2000. According to
VA officials, all three of VA's administrations showed the budget
resources associated with their programs in the fiscal year 2001
congressional budget justification. In fiscal year 2004, VA proposed to
restructure its appropriations accounts to better align budget resources
with its major programs. VA also made corresponding changes to the
organizing format of its congressional budget justification. Congress did
not enact the proposed account structure and directed VA "to refrain from
incorporating `performance-based' budget documents in the 2005
congressional budget justification" and to submit the justification with
the traditional appropriations account structure.1 Despite congressional
objections, VA proposed appropriations account structure changes for the
fiscal year 2005 budget and also integrated its annual performance plan
into its congressional budget justification, rather than submitting it as
a separate volume as it had done previously. Again, Congress did not
appropriate under the proposed account structure.
1 House Committee on Appropriations Report 108-235, Departments of
Veterans Affairs and Housing and Urban Development, and Independent
Agencies Appropriations Bill, 2004 (July 24, 2003), p. 4.
Page 131 GAO-05-117SP Performance Budgeting
Figure 8: VA's Implementation Time Line FY1995 FY1997 FY1998 FY1999 FY2000
FY2003 FY2004
VBA began to Included Formed joint Began VA (as a Proposed Proposed
align budget summary of working submitting whole) aligned account modified
resources to Annual groups with Annual budget restructuring appropriation
programs for Performance OMB to think Performance resources to and submitted account
presentational Plan in FY about budget Plan as a programs for restructured restructuring
and
purposes in 1998 budget restructuring separate presentational budget submitted
FY1996 budget justification volume of purposes in justification restructured
for
justification FY2000 the FY2001 FY2004; budget
budget budget Congress did justification
for
justification justification not FY2005;
appropriate
under Congress did
proposed not
structure appropriate
under
proposed
structure
Incorporated Annual Performance Plan into budget justification no longer
submitting as a separate volume
Source: GAO analysis.
Summary of VA's Budget Restructuring Approach
For the fiscal years 2004 and 2005 budgets VA both proposed changes to its
appropriations account structure and made corresponding changes to the
organizing framework of its congressional budget justification. These
changes increased the focus on programs and associated resources but made
information on individual items of expense less apparent. To facilitate
transition to the new account structure, VA provided OMB and Congress with
crosswalk tables to assist them in evaluating its budget request. In
addition, VA proposed new transfer authority for some expense items
between some program accounts. VA allocates budget resources other than
Departmental Administration to its nine major programs. Different types of
resources are allocated differently.
VA Proposed Appropriations Account Structure Changes for Fiscal Years 2004
and 2005
In its proposed changes to its appropriations account structure for fiscal
years 2004 and 2005, VA chose to focus the proposed restructuring around
VA's nine major programs, which are the eight direct benefits-Medical
Care, Compensation, Pensions, Insurance, Education, Housing, VR&E, and
Burial-and one indirect benefit-Medical Research and Support-that VA
provides. The key features of VA's proposed appropriations account
structure for fiscal year 2004 were:
o Reducing the number of appropriations accounts by, for example,
eliminating the medical administration account, two construction
appropriations accounts, and two grant appropriations accounts.
o Allocating indirect expense items, including program administration,
construction, and grants for construction to the program accounts they
support.
o Funding a program's mandatory and discretionary components in one
appropriations account.
o Continuing to fund departmental administration in a separate account,
General Administration.
In VA's enacted appropriations account structure for fiscal year 2003,
VA's programs were funded by multiple appropriations accounts. Some
accounts, such as Major Construction or General Operating Expenses (GOE),
provided resources associated with multiple programs and some accounts,
such as MAMOE2 and Medical and Prosthetic Research, provided resources for
only one program. Figure 9 compares the enacted appropriations account
structure for fiscal year 2003 to the proposed appropriations account
structure for fiscal year 2004 and illustrates how the proposed account
structure would consolidate resources from multiple accounts and split
some appropriations accounts among multiple programs. For example, under
VA's proposed account structure for fiscal year 2004, resources from five
appropriations accounts that support the medical care program would be
consolidated and funded through one appropriations account. The GOE
account would be split among eight appropriations accounts.
2 Medical Administration and Miscellaneous Operating Expenses.
Figure 9: Comparison of Appropriations Accounts Funding Each Major Program
under Fiscal Year 2003 Enacted Appropriations Account Structure and Fiscal
Year 2004 Proposed Appropriations Account Structure
Proposed account structure (FY 2004) Enacted account structure (FY 2003)
Medical Care program
Medical Care o Medical Care (portion) o Medical Administration and
Miscellaneous Operating Expenses (MAMOE) o Grants for construction of
State Extended Care facilities o Major Construction (portion) o Minor
Construction (portion) }
Medical Research and Support program
Medical and Prosthetic Research o Medical and Prosthetic Research o
Medical Care (portion) }
Compensation program
Compensation o Compensation and Pensions (portion) o Readjustment
Benefits (portion) o Minor Construction (portion) o General Operating
Expenses (portion) }
Pensions program
Pensions o Compensation and Pensions (portion) o Minor Construction
(portion) o General Operating Expenses (portion) }
Education program
Education o Readjustment Benefits (portion) o Education Loan Fund
Program Account o Minor Construction (portion) o General Operating
Expenses (portion) }
Vocation Rehabilitation and Employment program
Vocation Rehabilitation and Employment o Readjustment Benefits (portion)
o Vocational Rehabilitation Loans Program Account o Minor Construction
(portion) o General Operating Expenses (portion) }
Insurance program
Insurance o Veterans Insurance and Indemnities o General Operating
Expenses (portion) }
Housing program
Housing Program Account o Veteran Housing Benefit Program Fund Program
Account o Native American Veteran Housing Loan Program Account o
Guaranteed Transitional Housing Loans for Homeless Veterans Program
Account o General Operating Expenses (portion) }
Burial program
Burial Benefits o Compensation and Pensions (portion) o Grants for the
construction of State Veterans Cemeteries o Major Construction (portion)
o Minor Construction (portion) o National Cemetery Administration o
General Operating Expenses (portion) }
Departmental Management
General Administration o General Operating Expenses (portion) o Major
Construction (portion) o Minor Construction (portion) }
Inspector General
Inspector General o Inspector General o Minor Construction (portion) }
Source: GAO.
Note: Excludes some trust funds, special funds, revolving funds, and
nonbudgetary accounts.
Despite some appropriations accounts being eliminated, VA is maintaining
some visibility by showing the different types of resources funded within
each program account in the program activity listing. For example, as
shown in figure 10, the Medical Care account's program activity listing
includes NPA-MAMOE, Major Construction, Minor Construction, and Grants to
states for construction of extended care facilities. As a result, although
appropriations accounts for construction and administration would be
eliminated, the portion of VA's construction and administration resources
related to a specific program could be found within each program account.
VA's proposed appropriations account structure was not accepted by
Congress for fiscal year 2004. Rather, Congress made different changes to
VA's account structure. For the most part, VA continued operating under
the same appropriations account structure. However, appropriators created
three separate appropriations accounts for Medical Care-Medical Services,
Medical Administration, and Medical Facilities. According to
appropriations subcommittee staff, the enacted account structure was
intended to provide a better understanding that increasing funding for
Medical Care does not necessarily result in an equal increase in medical
services provided to veterans because there is associated infrastructure
and overhead to finance.
VA again proposed to change its account structure for the fiscal year 2005
budget. The fiscal year 2005 proposed structure differed from the fiscal
year 2004 proposed structure in that VA proposed separate appropriations
accounts for the mandatory and discretionary portions of some benefits
programs (see figure 11). For example, VA proposed funding mandatory
benefits of the Compensation program in the Disability Compensation
Benefits appropriations account and the associated discretionary spending,
including GOE (i.e., program administration) and construction in the
Disability Compensation Administration appropriations account. As in the
fiscal year 2004 budget proposal, VA proposed to fund Departmental
Administration in a separate account. Again, VA's proposed account
structure was not enacted for fiscal year 2005 and appropriators used the
same account structure as used for the fiscal year 2004 budget.
Figure 11: Comparison of Appropriations Accounts Funding Each Major
Program under Fiscal Year 2004 Enacted Appropriations Account Structure
and Fiscal Year 2005 Proposed Appropriations Account Structure
Proposed account structure (FY 2005) Enacted account structure (FY 2004)
Medical Care program
Medical Care o Medical Services o Medical Facilities o Medical
Administration o Grants for construction of State Extended Care
facilities o Major Construction (portion) o Minor Construction (portion)
Medical Research and Support program
Medical and Prosthetic Research o Medical and Prosthetic Research o
Medical Care (portion)
Compensation program
Compensation o Compensation and Pensions (portion) o Readjustment
Benefits (portion) o Major Construction (portion) o Minor Construction
(portion) o General Operating Expenses (portion)
Pensions program
Pensions o Compensation and Pensions (portion) o Minor Construction
(portion) o General Operating Expenses (portion)
Education program
Education o Readjustment Benefits (portion) o Education Loan Fund
Program Account o Minor Construction (portion) o General Operating
Expenses (portion)
Vocation Rehabilitation and Employment program
Vocation Rehabilitation and Employment o Readjustment Benefits (portion)
o Vocational Rehabilitation Loans Program Account o Minor Construction
(portion) o General Operating Expenses (portion)
Insurance program
Insurance o Veterans Insurance and Indemnities o Minor Construction
(portion) o General Operating Expenses (portion)
Housing program
Housing Program Account o Veteran Housing Benefit Program Fund Program
Account o Native American Veteran Housing Loan Program Account o
Guaranteed Transitional Housing Loans for Homeless Veterans Program
Account o Minor Construction (portion) o General Operating Expenses
(portion)
Burial program
Burial Benefits o Compensation and Pensions (portion) o Grants for the
construction of State Veterans Cemeteries o Major Construction (portion)
o Minor Construction (portion) o National Cemetery Administration o
General Operating Expenses (portion)
Departmental Management
General Administration o General Operating Expenses (portion) o Major
Construction (portion) o Minor Construction (portion)
Inspector General
Inspector General o Inspector General o Minor Construction (portion)
Source: GAO.
Note: Excludes some trust funds, special funds, revolving funds, and some
nonbudgetary accounts.
Changes to Congressional Budget Justification Followed Organizing
Framework Used for Proposed Account Structure
For both fiscal years 2004 and 2005, VA changed the organizing framework
for its congressional budget justification to reflect the proposed
appropriations account structure framework (i.e., around its major
programs). For the fiscal year 2003 congressional budget justification,
budget information within each volume was generally organized by
appropriations account and then programmatic area. For example, within the
"Benefits Program" volume, there was a section for the Compensation and
Pensions appropriations account and a discussion of the mandatory portion
of three programs it funded. The extent to which the program discussion
included individual items of expense associated with each program varied
by administration. VHA's administrative budget request was discussed in
the same volume as the direct program budget request, whereas VBA's
administrative budget request was discussed in the "Departmental
Administration" volume separate from the direct program budget. The
congressional budget justification included one volume devoted solely to
Construction providing an agencywide summary of the total resources
requested for construction. The performance plan also was submitted as a
separate volume of the budget justification.
Key changes in the fiscal years 2004 and 2005 congressional budget
justifications were the reorganization of program-related information and
fuller incorporation of the annual performance plan. VA presented the
direct program portion of each program and the administrative budget
request for that program in the same volume for all administrations
similar to VHA in fiscal year 2003. Also, VA eliminated the Construction
volume and discussed construction projects along with the program-specific
budget request. Further, beginning in the fiscal year 2005 budget, VA more
fully incorporated its annual performance plan into the budget
justification and no longer submitted it as a separate volume.
As Focus on Programs Increased, Some Previously Reported Information
Became Less Transparent
As the focus on programs increased in VA's fiscal years 2004 and 2005
budget structure, information on individual items of expense became less
apparent. For example, we found that total resources requested for
construction were less transparent in the fiscal years 2004 and 2005
budgets than in the fiscal year 2003 budget. In fiscal year 2003, total
Construction for VA was appropriated in two accounts-(1) Construction,
Major and (2) Construction, Minor-and was shown in a separate volume of
the congressional budget justification. In contrast, in both the fiscal
years 2004 and 2005 budget structures, total construction resources were
allocated to eight of VA's nine major programs and to Departmental
Administration and the Inspector General.3 Further, VA no longer provided
a separate volume for Construction in its congressional budget
justification.
To facilitate transition to the new account structure, VA provided OMB and
Congress with crosswalk tables to assist them in evaluating its budget
request. These side-by-side tables presented VA's budget request under
both the old and new appropriations account structures. A VA official said
these tables were designed to assist OMB and congressional appropriations
committee staff to become more familiar and comfortable with the proposed
account structure.
VA requested new transfer authority for administrative expenses between
the Medical Care and Medical Research accounts of up to 5 percent in the
first year, 2 1/2 percent in the second year, and zero percent
thereafter. Also, VA requested transfer authority for operational expenses
between Compensation, Pensions, Insurance, Education, VR&E, and Burial of
up to 10 percent in the first year, up to 5 percent in the next year, and
zero percent in the third year. VA said that transfer authority was needed
to facilitate the transition to the new appropriations account structure.
Additionally, according to VA officials, this transfer authority was
needed to avoid antideficiency violations that might arise for two
reasons:
(1) estimation uncertainties surrounding their allocations of
administrative costs and (2) changes in benefit claims that might arise
due to war or legislative changes.
Requests for Transfer Authority Accompany Proposed Account Structure
Changes
VA Allocates Budget Resources Other Than Departmental Administration to
Its Nine Major Programs Using Different Methods to Allocate Different
Types of Resources
VA allocates budget resources to its nine major programs. For the fiscal
year 2004 budget, resources allocated to and requested by program budgets
were benefit payments, program administration, operations, construction
projects, and grants. For example, VA proposed that the Medical Care
appropriations account include funding for medical administration, related
Construction projects, related Grants to build extended care facilities,
as well as the capital and operating expenses traditionally funded through
this account. VA also proposed that VBA's administrative expenses and
construction projects be funded through separate program appropriations
accounts. However, VA did not allocate departmental administration to its
3 VA did not allocate construction resources to the Medical Research
budget.
programs, but rather continued to finance these costs in a separate
account.
VA used various methods, ranging from specific projects, full-time
equivalents (FTEs), workload estimates, and cost accounting system
estimates, to distribute different types of resources. For example, VA
officials said construction costs were distributed to the administrations
on a project basis. For example, resources for the construction of new
cemeteries were distributed to NCA. VBA distributed construction project
resources among its programs based on the number of program FTEs. VBA
considers estimated workload (e.g., estimated number of pension,
compensation, and burial claims received) and associated FTEs to
distribute administrative costs among six programs-Compensation, Pensions,
Education, VR&E, Housing, and Insurance. At VHA, physicians' salaries were
divided between medical care and medical research based on information
from its cost accounting system, which tracks time doctors spend providing
service or conducting research. VHA officials questioned the value of
distributing certain costs. For example, some VHA officials noted that
distributing utilities among medical care and research is complicated and
time consuming and, in their opinion, does not necessarily provide
benefits commensurate with these costs.
VA officials credited budget restructuring with providing a more complete
picture of total program resources and helping to highlight resource
trade-offs. However, the extent to which resource trade-offs could be made
might be limited by proposed appropriations language, among other things.
Some program managers raised concerns that proposed appropriations account
structure changes would create new problems such as reducing flexibility
to respond to changing needs and creating budget execution difficulties.
Lastly, some VA officials said that budget restructuring did not provide
information they consider most useful to improving management and
oversight.
Agency Views on Benefits and Limitations of Budget Restructuring for
Management and Oversight
Changes Alter the Framework for Budget Choices
VA's budget restructuring efforts sought to increase the focus on program
resources as a whole, rather than on individual items of expense. In doing
so, VA's proposed appropriations account structure would reframe budget
choices and change the nature of resource management and oversight.
Whereas under the current structure trade-offs are generally made between
similar types of spending, trade-offs would be made across all types of
Page 141 GAO-05-117SP Performance Budgeting
Changes Provide a More Complete Picture of Total Program Resources and
Help Highlight Trade-offs
spending within a program under the proposed structure. For example, under
the current structure, if a minor construction project cost more than
anticipated or a new need arose, managers might make trade-offs among
other construction projects, by for example, deferring another
construction project. Similarly, a larger than anticipated utility bill
might defer other operating expenses. Under the proposed structure,
however, resource trade-offs would be focused within a program among
different types of spending. For example, managers might defer a new minor
construction project to cover increased operating expenses once
appropriate reprogramming requests were approved.
According to VA officials, one objective of VA's proposed appropriations
account structure and congressional budget justification changes is to
provide a more complete picture of the resources used to achieve program
performance. VA officials and program managers said the budget resources
used to achieve program performance goals are not readily apparent under
VA's current appropriations account structure. The burial program, for
example, is currently funded by six appropriations accounts.4 Performance
measures related to ensuring that veterans and eligible family members
have reasonable access to veteran cemeteries are supported by the
operating, construction, and grant appropriations accounts, which were
shown in separate volumes of the fiscal year 2003 congressional budget
justification. VA officials said this format complicated discussions about
the relationship between the program's performance goals and the resources
needed to achieve them. VA officials indicated that prior to budget
restructuring efforts, VA tended to work "in stovepipes" and didn't look
at all resources used to provide burial services. After presenting the
burial program's budget resources together, VA officials said that budget
restructuring provided a better understanding of the resources needed to
achieve the burial program's performance goals. It also helped highlight
potential trade-offs among resources used to achieve goals (e.g., federal
construction projects and grants to states to construct veteran
cemeteries). A VA program manager also credited changes with bringing
managers together in a more coordinated manner.
4 These appropriations accounts are: (1) National Cemetery Administration,
which funds the operations and maintenance of veterans cemeteries; (2)
Compensation and Pensions, which funds the burial benefits provided, such
as burial flags, graveliners, and headstones;
(3)
General Operating Expenses, which funds VBA's burial-related
administrative expenses;
(4)
Grants for the Construction of State Veterans Cemeteries; (5)
Major Construction, which funds new national cemeteries; and (6)
Minor Construction.
Page 142 GAO-05-117SP Performance Budgeting
Ability to Make Resource Trade-offs Under Proposed Budget Structure May Be
Limited
Under VA's proposed account structure, managers potentially would have
some increased flexibility to make trade-offs within a program between
individual items of expense including construction or program
administration without requiring transfer authority. However, according to
VA officials, several factors may limit a manager's ability to make
trade-offs, including proposed appropriations language, authorizing
legislation, and the nature of appropriated funds. For example, for both
the fiscal years 2004 and 2005 budgets, VA's proposed appropriations
language for a number of program appropriations accounts included a
ceiling on construction costs. This ceiling would limit managers' ability
to make trade-offs between program administration and construction;
managers could shift funds from construction to administration but not
from administration to construction.5 Authorizing legislation, which
requires VBA to provide specific services, would also limit VBA's ability
to make trade-offs among programs or within a program between benefits (to
which veterans are entitled) and operating expenses. Another reason,
according to VA officials, it would be difficult for managers to make
additional trade-offs is the different nature or periods of time for which
appropriated funds are available for obligation. For example, construction
resources are generally available until expended while other resources are
available for only 1 or 2 years. VA officials said that because resources
are appropriated with different rules and tracked separately, it would be
difficult to commingle them.
Appropriations Account Structure Changes May Create New Resource
Management Challenges
While some officials and managers noted potential advantages of
appropriations account structure changes for resource management, others
noted that appropriations account structure changes may create new
resource management challenges. These concerns were raised in cases where
budget resources that were previously appropriated in a single
appropriations account are disaggregated and allocated among multiple
appropriations accounts to better align with programs and performance. The
concerns stem, in part, from differences between the proposed
appropriations account structure and how VA currently operates as well as
concerns about the ability to accurately allocate resources within the new
structure. As a result, VA officials we spoke with raised the concern that
5 VA would have to consult or notify appropriations committees of funding
shifts among programs or activities above certain dollar thresholds
depending on its specific reprogramming guidelines.
Page 143 GAO-05-117SP Performance Budgeting
budget restructuring may, among other things, reduce flexibility to
respond to changing needs and create budget execution difficulties.
For example, some VA program managers raised concerns that the proposed
account structure might reduce VA's flexibility and ability to manage the
workload during budget execution to respond to changes in benefit claims
or performance needs. Under VA's fiscal year 2003 account structure, the
GOE appropriations account funded administrative expenses for all VBA
benefit programs. Within this appropriations account and within
reprogramming guidelines, VBA could shift administrative funds among
programs throughout the year to address performance issues or changes in
benefit claims that might arise due to war or legislative changes. For
example, to meet compensation workload goals, VBA sometimes used pension
administrative funds to process disability compensation claims. In
contrast, under the proposed account structures for fiscal years 2004 and
2005, the ability to shift administrative funds among programs throughout
the year would be more limited because each program's administrative
expenses would be paid from separate appropriations accounts. As a result,
VA would make trade-offs within a program among different types of
spending. For example, if there were a surge in disability compensation
claims due to a war or change in legislation and VBA had to increase
compensation claims processing, VBA would have to either reduce other
administrative costs associated with the disability compensation program,
such as travel or operating expenses, or would face antideficiency
violations.6 Officials noted that, if the requested transfer authority
were granted along with the enactment of the proposed account structure,
possible antideficiency violations would be less of an issue during the
first 2 years.
In addition, some expressed concerns that estimation uncertainty
surrounding the allocations of administrative costs may complicate paying
administrative expenses and civil servant salaries having implications for
executing the budget properly and avoiding antideficiency violations. For
example, at VBA one employee might administer benefits from several
different programs. Currently, that employee's salary is paid from the GOE
appropriations account. Under the proposed appropriations account
structures for fiscal years 2004 and 2005, a VBA employee's salary would
6 The Antideficiency Act, among other things, prohibits making
expenditures or incurring obligations in excess of amounts available in
appropriations accounts unless specifically authorized by law.
Page 144 GAO-05-117SP Performance Budgeting
Budget Restructuring Does Not Provide Some Information Cited as Useful for
Improving Management and Oversight
have been paid from more than one appropriations account. Splitting a VBA
employee's salary among three appropriations accounts would require
estimating the time the employee spent on each program. Similar concerns
were raised by VHA officials because doctors that spend time providing
medical care and conducting medical research would be paid through two
appropriations accounts under the fiscal years 2004 and 2005 proposed
account structures. VA officials told us that estimation uncertainty
surrounding the allocations of administrative costs was one reason VA
requested transfer authority for operational expenses between six program
accounts. However, this authority was only to be in place for 2 years.
Some program managers and appropriations subcommittee staff said detailed
cost information and performance measures were more important for
improving management and oversight than the information provided by the
budget restructuring effort. For example, VBA officials said performance
information on quality and timeliness informs resource allocation
decisions in VBA's field offices. Another official said cost accounting
information could help VHA identify underused medical equipment and divert
some of its resources to another medical facility to help cover costs.
Similarly, some appropriations subcommittee staff said they needed more
detailed cost information than what was provided under the proposed
account structure. According to appropriations subcommittee staff,
information such as cost per patient or cost per insurance claim was
potentially useful in making budget decisions. Further, an appropriations
subcommittee staff said that improving cost and performance information
was important to have before moving forward with budget restructuring
efforts.
VA officials indicated that they plan to continue showing the budget
Future Direction
resources associated with VA's programs in the congressional budget
justification and fully integrating the performance plan, but said they
were unsure at this time how they would proceed with appropriations
account restructuring. They said that while budget restructuring put them
in a better position to focus on how resources could be used more
efficiently to achieve VA's access goals, they did not view the
appropriations account structure changes as critical to these efforts.
Appendix IV
Environmental Protection Agency
Background
Beginning with the fiscal year 1999 budget, the Environmental Protection
Agency (EPA) made changes within its appropriations accounts and
congressional budget justification to better link budget resources to
strategic goals and objectives. EPA changed its program activities within
its appropriations accounts to better align with its strategic plan. EPA
also integrated its annual performance plan into its congressional budget
justification and restructured the justification around its strategic
goals and supporting strategic objectives.1 However, EPA officials said
that partly in response to congressional concerns, program information
continues to be provided in the congressional budget justification. Moving
forward, EPA plans to continue to make necessary adjustments every three
years to reflect revised Strategic Plans required under the Government
Performance and Results Act (GPRA) and to improve performance and cost
data.
EPA's stated mission is "to protect human health and the environment."
EPA's work involves five key areas: developing regulations, providing
financial assistance, conducting environmental research, sponsoring
voluntary partnerships and programs, and fostering compliance of national
environmental standards. Much of EPA's work involves the provision of
grants and other pass-through resources to states, localities, and Indian
tribes to carry out environmental work. The agency is composed of 13
offices2 and employs 18,000 staff located in Washington, D.C., regional
offices, labs, and other facilities located across the country. EPA
requested $7.8 billion in discretionary budget authority for fiscal year
2005.3
1 This report focused on budget restructuring efforts up through the
fiscal year 2005 budget. EPA restructured its fiscal year 2006 budget in
response to congressional direction so that it is organized by
appropriations account and program/project. Information on strategic goals
and objectives is provided as a supplement.
2 EPA's offices are: (1) Office of Air and Radiation; (2) Office of Water;
(3) Office of Prevention, Pesticides and Toxic Substances; (4) Office of
Solid Waste and Emergency Response; (5) Office of Enforcement & Compliance
Assurance; (6) Office of Research and Development; (7) Office of
Environmental Information; (8) Office of Administration and Resources
Management; (9) Chief Financial Officer; (10) Office of General Counsel;
(11) Office of International Affairs; (12) Office of the Administrator;
and (13) Office of Inspector General.
3
The Budget of the United States Government, Fiscal Year 2005-Appendix,
shows that this requested amount includes, for example, about $1.3 billion
for the Superfund account, and $2.3 billion for the Environmental Programs
and Management account.
EPA's strategic plan served as the organizing framework for its budget
changes. Figure 12 provides a simplified example of EPA's organizing
framework using the Clean Air and Global Climate Change strategic goal.4
Each strategic goal is broken down into a number of strategic objectives.
Objectives are supported by a number of program/projects.5 For example,
the Clean Air and Global Climate Change strategic goal and the strategic
objective, Healthier Outdoor Air, are supported by a number of
program/projects, including the Clean School Bus initiative and Clean Air
Allowance Trading Programs. Some program/projects may support one or more
goals or objectives. For example, figure 12 shows that Clean Air Allowance
Trading Programs support both the Healthier Outdoor Air and Enhance
Science and Research strategic objectives. The same hierarchy is used for
each of EPA's five strategic goals.
4 EPA has four other strategic goals, including: (1) Clean and Safe Water,
(2) Land Preservation and Restoration, (3) Healthy Communities and
Ecosystems, and
(4) Compliance and Environmental Stewardship.
5 Program/projects are defined as major program areas of responsibility
and describe "what" EPA does based on specific statutory authority
(programs) or "what" significant tasks or problems the agency is
addressing (projects).
Page 147 GAO-05-117SP Performance Budgeting
Strategic objectives
Program/projects
Source: GAO analysis based on Environmental Protection Agency 2005 Annual
Performance Plan and Congressional Justification.
Within this framework, strategic goals and strategic objectives,
appropriations accounts, and program/projects may cross. Figure 13 shows
these relationships. Strategic goals and objectives are supported by
multiple program/projects, which may be funded by multiple appropriations
accounts. For example, figure 13 shows the Clean Air goal and one of its
supporting objectives-Healthier Outdoor Air-are funded by five
appropriations accounts. Program/projects may also be funded by multiple
appropriations accounts and, in some cases, support multiple strategic
goals and objectives. For example, the Homeland Security: Critical
Infrastructure Protection program/project receives funding through three
appropriations accounts and contributes to a number of strategic goals and
objectives. Similarly, appropriations accounts generally provide funding
for multiple strategic goals and objectives. For example, the
Environmental Programs and Management and Science and Technology
appropriations accounts fund all five of EPA's strategic goals and their
supporting strategic objectives. As discussed in section 4 of the report,
when there are multiple contributors and funding streams to strategic
goals and objectives, determining the performance contributions of
programs to goals or objectives within the new budget structures is
challenging.
Objectives and Implementation Time Line
Source: GAO analysis.
Beginning in the mid-1990's, EPA undertook steps aimed at better linking
its budget to its strategic plan. EPA officials described the previous
budget structure as focused on program inputs and lacking the strategic
vision and consideration of performance to support decision making.
According to EPA officials, the changes to the budget were made to provide
a better picture of what EPA is trying to achieve with a given level of
budget resources and to better incorporate a performance perspective in
the budget process.
EPA officials did not view changing managerial flexibility over budget
resources as one of the primary objectives of EPA's budget changes. EPA
officials and program managers we spoke with generally did not view the
appropriations account structure as an impediment to management or as
posing a barrier to incorporating a performance perspective into the
budget. For example, some officials and staff from EPA's offices noted
that although their programs are funded by multiple appropriations
accounts, they generally have adequate authority and flexibility over
those budget resources to manage their programs.
As shown in figure 14, EPA's effort to better link budget resources to
performance in the budget began in the mid-1990's. In fiscal year 1996,
EPA created the Planning, Budgeting, Analysis, and Accountability (PBAA)
process to meet requirements set forth in GPRA and better position EPA to
focus on results. One of the PBAA's stated purposes was improving the link
between long-term planning and annual resource allocation.6 During fiscal
year 1997, EPA undertook efforts to better link its budgeting, planning,
and financial management processes and to integrate relevant staff. Then,
for the fiscal year 1999 budget, EPA integrated its performance plan
within its congressional budget justification and restructured its program
activities and its congressional budget justification to better align with
its strategic plan. Most recently in its fiscal year 2005 budget, EPA
modified the program activities within its appropriations accounts and its
budget justification to reflect changes to its strategic plan.
6 The PBAA had four stated purposes: (1) to develop goals and objectives
for accomplishing the agency's mission, (2) to make better use of
scientific information related to human health and environmental risks in
setting priorities, (3) to improve the link between long-term planning and
annual resource allocation, and (4) to develop a new management system to
assess accomplishments and provide feedback for making future decisions.
Page 151 GAO-05-117SP Performance Budgeting
Figure 14: EPA's Implementation Time Line
FY1996 FY1997 FY1998 FY1999 FY2000 FY2001 FY2002 FY2003 FY2004
Implemented Integrated Integrated
Submitted FY2000-FY2004 budgets using Submitted FY2005 Planning, budget,
planning and new strategic plan framework budget that reflected Budgeting,
planning, budget revised strategic plan Analysis, and and financial
structures and Accountability manage ment systems to
Process staff prepare and Issued revised
submit the
strategic plan that Issued FY1999 budget reduced strategic strategic plan
goals from 10 to 5Submitted FY1999
that included ten strategic budget that
goals integrated annual performance plan and budget justification; Changed
program activities to reflect strategic goals
Source: GAO analysis.
Summary of EPA's Budget Restructuring Approach
After Congress restructured EPA's appropriations accounts in 1996, EPA
made performance-related budget changes within its appropriations accounts
and to the congressional budget justification rather than proposing
changes to the account structure. Within its appropriations accounts, EPA
changed program activities to better align with its strategic goals. EPA
also integrated its annual plan into its congressional budget
justification and organized the justification around strategic goals and
objectives. Within the restructured budget, budget resources were aligned
with strategic goals and objectives. At the same time these changes were
made to the budget structure, EPA's reprogramming guidance also changed.
However, partly in response to congressional concerns, EPA incorporated
additional information to assist users, including funding by program and
appropriations accounts.
Some Changes Made to EPA's Appropriations Account Structure in the
Mid-1990s
Congress initiated appropriations account structure changes in the late
1990s that were intended to allow EPA greater flexibility to manage its
programs. After the release of a 1995 congressionally requested report by
the National Academy of Public Administration,7 Congress restructured
EPA's appropriations accounts for the fiscal year 1996 budget.
Specifically, Congress eliminated the Program and Research Operations
account (which mainly funded administrative expenses, such as salaries)
and the Abatement, Control and Compliance accounts (which funded
activities, such as setting environmental standards and issuing permits).
According to a 1995 conference report, a new Environmental Programs and
Management account was created in an effort to provide EPA with increased
flexibility to meet personnel and program requirements; it funded most of
the items previously funded by the eliminated accounts. State categorical
grants that were proposed under the Abatement, Control and Compliance
account were moved to a newly created account, State and Tribal Assistance
Grants. In addition, a Science and Technology account was created for
research activities.
Strategic Goals and Objectives Used as Organizing Framework for
Appropriations Account Structure and Budget Justification Changes
EPA made its performance-related changes to the program activities within
its existing appropriations account structure and the budget justification
rather than change the account structure itself. Table 15 uses the
Environmental Programs and Management account to illustrate changes made
to EPA's program activities since the fiscal year 1998 budget. Beginning
in the fiscal year 1999 budget, EPA changed the program activities within
its appropriations accounts from programmatic and functional areas, such
as Pesticides and Support Costs, to strategic goals, such as Clean Air and
Clean Water.
7 Setting Priorities, Getting Results: A New Direction for the
Environmental Protection Agency, National Academy of Public
Administration, 1995. This report provides recommendations to EPA and
Congress for strengthening EPA's management, including how EPA allocates
its budget and how its managers think about the programs, priorities, and
responsibilities.
Page 153 GAO-05-117SP Performance Budgeting
Table 15: Program Activity Changes Since Fiscal Year 1998 Budget:
Environmental Programs and Management Appropriations Account Example
Fiscal year 1998 budget Fiscal year 1999 budget Fiscal year 2005 budget
Program activities:
Air Water Quality Drinking Water Hazardous Waste Pesticides Radiation
Multimedia Toxic Substances Mission and Policy Management Agency
Management Regional Management Support Costs Superfund Program activities:
Clean Air Clean Water Safe Food Preventing Pollution Waste Management
Global and Cross-border Right to Know Sound Science Credible Deterrent
Effective Management Program activities:
Clean Air and Global Climate Change Clean and Safe Water Land Preservation
and Restoration Healthy Communities and Ecosystems Compliance and
Environmental Stewardship Reimbursable programa
Source: President's Budget Appendix for EPA for fiscal years 1998, 1999,
and 2005.
a This program activity is not a strategic goal.
The formats for the fiscal years 2000 through 2004 budgets used the same
basic format as EPA introduced for the fiscal year 1999 budget. For the
fiscal year 2005 budget, EPA consolidated the number of program activities
to reflect changes to its strategic plan, which reduced the number of
strategic goals from 10 to 5. Within each appropriations account, budget
resources, including indirect office-level and central administrative
resources, were aligned to strategic goals and objectives. Since a
strategic goal might have been supported through multiple appropriations
accounts, the amount shown for a strategic goal in any one appropriations
account did not necessarily represent the total budget resources
associated with that goal.
EPA also made changes to its congressional budget justification. Beginning
with the fiscal year 1999 budget, EPA integrated its annual plan into the
congressional budget justification and reformatted the justification to
better align its budget request with the agency's strategic goals and
objectives. Previously, EPA's justification had been organized with a
chapter for each appropriations account and sections within each chapter
for each EPA office. For example, the previous justification contained a
Science and Technology chapter, which in turn included sections for EPA's
offices funded by that appropriations account, which was followed by
program information. EPA staff said that previous congressional budget
justifications included program elements, which were breakdowns of
programmatic areas. For example, the Air Toxics program was broken down by
several program elements, including Air Quality Planning and Standards and
Air Quality Management Implementation. EPA's reprogramming guidance was
tied to these program elements.
For the fiscal year 1999 through 2005 justifications, EPA aligned budget
resources to strategic goals and objectives. Budget information was shown
by strategic goals and objectives in both summary tables at the front of
the congressional budget justification and within chapters organized by
strategic goal. For example, summary tables at the front of the fiscal
year 2005 congressional budget justification showed (1) budget authority
by goal and appropriations account, and (2) budget authority by goal and
objective. Examples of these tables are shown in tables 16 and 17.
Table 16: Resource Table Presented in EPA's Fiscal Year 2005 Congressional
Budget Justification: Resources by Goal/Appropriation
FY2003 Actuals FY2004 Pres. FY2005 Pres.
Budget Budget
Clean Air and Global Climate Change
Budget Authority Dollars in $882,811.6 $915,983.1 $1,004,615.5
thousands
Full-time equivalents (FTE) 2,702.6 2,737.9 2,756.6
Environmental Programs and
Management
Budget Authority $416,801.6 $451,848.7 $467,758.4
FTEs 1,919.0 1,948.8 1,963.7
Environmental Programs and
Management-reimbursable
FTEs 1.2 0.5 0.6
Science and Technology
Budget Authority $197,661.1 $199,500.1 $205,788.5
FTEs 703.2 702.7 702.9
Science and Technology-reimbursable
FTEs 3.2 3.0 3.0
Buildings and Facilities
Budget Authority $8,560.5 $8,710.1 $9,387.0
State and Tribal Assistance Grants
Budget Authority $252,531.8 $247,750.0 $312,750.0
FEMA -reimbursable
FTEs 6.8 0.0 0.0
Inspector General
Budget Authority $4,198.2 $5,147.0 $5,724.6
FTEs 31.3 38 40.9
Hazardous Substance Superfund
Budget Authority $3,058.4 $3,027.2 $3,207.1
FTEs 18.7 17.3 18.2
Working Capital Fund-reimbursable
FTEs 19.2 27.6 27.3
Source: Environmental Protection Agency 2005 Annual Performance Plan and
Congressional Justification.
Note: Strategic goal shown in bold text. Appropriations accounts shown in
italics.
Table 17: Resource Table Presented in EPA's Fiscal Year 2005 Congressional
Budget Justification: Resources by Goal/Objective
FY2003 Actuals FY2004 Pres. Budget FY2005 Pres. Budget
Clean Air and Global Climate
Change
Budget Authority $882,811.6 $915,983.1 $1,004,615.5
Dollars in thousands
FTEs 2,702.6 2,737.9 2,756.6
Healthier Outdoor Air
Budget Authority $557,907.1 $579,059.2 $659,876.2
FTEs 1,706.6 1,751.5 1,765.9
Healthier Indoor Air
Budget Authority $44,299.1 $48,042.5 $48,954.7
FTEs 152.0 149.9 153.2
Protect the Ozone Layer
Budget Authority $18,145.2 $19,069.4 $21,813.7
FTEs 39.2 36.1 36.7
Radiation
Budget Authority $30,046.8 $34,858.9 $34,718.0
FTEs 168.1 185.0 183.9
Reduce Greenhouse Gas Intensity
Budget Authority $99,836.4 $106,936.5 $108,389.3
FTEs 251.3 244.1 244.6
Enhance Science and Research
Budget Authority $132,577.0 $128,016.6 $130,863.6
FTEs 358.2 371.2 372.4
Source: Environmental Protection Agency 2005 Annual Performance Plan and
Congressional Justification (EPA's Proposed Budget).
Note: Strategic goal shown in bold. Strategic objectives shown in italics.
EPA's fiscal year 1999 through 2005 budget justifications were organized
by strategic goal. In the fiscal year 2005 congressional budget
justification, each strategic goal chapter began with a goal overview,
including a summary table of budget resources for the strategic goal
broken down by strategic objective and narrative describing the supporting
strategic objectives and performance goals and strategies. A section for
each strategic objective followed the goal overview. Each strategic
objective section contained two main tables: (1) a resource summary table
that broke down the budget request for the objective by appropriations
account, and (2) a table that listed all of the program/projects and
associated resources that support the objective. Figure 15 provides an
example using the resource summary table and the program/project table for the
Clean Air and Global Climate Change goal and Healthier Outdoor Air objective
from the fiscal year 2005 congressional budget justification.
Figure 15: Excerpt from EPA's Fiscal Year 2005 Congressional Budget
Justification
Environmental Protection Agency FY 2005 Annual Performance Plan and
Congressional Justification Clean Air and Global Climate Change
OBJECTIVE: Healthier Outdoor Air
Through 2010, EPA and its partners will protect human health and the
environment by attaining and maintaining health-based air quality
standards and reducing the risk from toxic air pollutants.
Resource Summary
(Dollars in Thousands)
FY 2003 FY 2004 FY 2005 FY 2005 Req.
v.
Actuals Pres. Bud. Pres. Bud. FY 2004 Pres
Bud
Healthier Outdoor Air $557,907.1 $579,059.2 $659,876.2 $80,817.1
Environmental Program &
Management $231,825.3 $250,509.5 $261,196.7 $10,687.3
Science & Technology $75,701.8 $81,059.9 $85,302.2 $4,242.3
State and Tribal Assistance $243,116.5
Grants $239,600.0 $304,600.0 $65,000.0
Building and Facilities $4,583.4 $4,645.2 $5003.2 $358.0
Inspector General $2,680.1 $3,244.6 $3,774.1 $529.5
Total Workyears 1,706.6 1,751.5 1,765.9 14.4
Program Project
(Dollars in Thousands)
FY 2003 FY 2004 FY 2005 FY 2005 Req.
v.
Actuals Pres. Bud. Pres. Bud. FY 2004 Pres
Bud
Clean School Bus $0.0 $1,500.0 $65,000.0 $63,500.0
Categorical Grant: State $229,633.4 $228,550.0 $0.0
and Local Air Quality $228,550.0
Management
Children and other $50.6
Sensitive Populations $235.0 $127.0 ($108.0)
Categorical Grant:Tribal $13,483.1 $11,050.0 $0.0
Air Quality $11,050.0
Management
Clean Air Allowance Trading $15,667.4
Programs $21,814.9 $22,857.5 $1,042.6
Congressionally Mandated $12,724.8
Projects $0.0 $0.0 $0.0
Federal Stationary Source $19,120.1
Regulations $23,702.2 $24,302.0 $599.8
Federal Support for Air $92,966.1 $102,849.9
Quality Management $96,657.4 $6,192.5
Federal Support for Air $28,116.6 ($1,296.4)
Toxics Program $28,655.1 $27,358.7
Federal Vehicle and Fuels $55,525.5 $60,446.8 $64,466.5
Standards and $4,019.7
Certification
International Capacity $3,570.0
Building $1,541.3 $1,633.9 $92.6
Homeland Security: Critical $0.0 $1,110.8 $4.6
Infrastructure $1,106.2
Protection
Administrative Projects $87,049.5 $103,800.3 $110,569.9 $6,769.7
TOTAL $557,907.1 $579,059.2 $659,876.2 $80,817.1
I-14
Source: EPA's FY 2005 Annual Performance Plan and Congressional Justification.
EPA Reprogramming Guidance Change Potentially Provided More Flexibility
At the same time that EPA made changes within its appropriations accounts
and congressional budget justification, Congress changed EPA's
reprogramming guidance to allow funding shifts within strategic
objectives, although its reprogramming dollar threshold remained the
8
same. Previously, EPA's reprogramming guidance only allowed shifting funds
within program elements, which was a tighter reprogramming unit than the
more aggregated strategic objective unit. EPA officials and OMB staff said
that the change to the strategic objective potentially provides more
flexibility to make trade-offs among program/projects.
EPA Showed Budget Resources by Strategic Goals and Objectives
As shown in the congressional budget justification, strategic goals and
objectives included associated budgetary resources, including direct costs
and indirect costs, such as central planning, facilities management, and
human resources management. Resources were allocated to strategic goals
and objectives through the program/projects that support them. EPA
officials explained that most program/projects included direct program
resources as well as all office-level administrative resources that are
directly traceable to program/projects such as personnel and travel costs.
However, central administrative resources were not allocated to
program/projects; rather these resources were shown as separate
program/projects, which were then allocated across strategic goals and
objectives.9 For example, "Central Planning, Budgeting, and Finance" and
"Facilities Infrastructure and Operations" were program/projects. These
types of enabling or support programs were aggregated and listed as
"administrative projects" beneath each objective and were included in the
budget resources of the strategic goals and objectives they support.10
8 According to the fiscal year 2004 House and Senate Appropriations
Committee reports, the reprogramming threshold is $500,000, except for (1)
in the Environmental Programs and Management account, up to $1,000,000 may
be reprogrammed with prior congressional approval; and, (2) in the State
and Tribal Assistance Grants account, reprogramming for performance
partnership grants funds is exempt.
9 In its fiscal year 2004 budget justification, some indirect costs were
captured in separate mission-support goals (e.g., Effective Management and
Sound Science). In the fiscal year 2005 budget justification, EPA
allocated these resources to its five mission-related goals and their
objectives.
10 EPA officials said that, in general, indirect resources are allocated
to strategic objectives based on supporting program/projects FTE levels.
Budget Justification Was Organized Around Strategic Goals but Additional
Information Was Included to Assist Decision Makers
While the tables within the strategic goal and objectives sections of the
congressional budget justification included the budget resources-both
direct and indirect-associated with the strategic goal and objectives,
only the portion of the appropriations account supporting the particular
strategic goal or objective was included. Similarly, in cases where a
program/project supported multiple strategic objectives, the
program/projects listed under strategic goals and objectives included only
the portion of the program/projects that supported the strategic goal and
objectives. For example, the Homeland Security: Critical Infrastructure
Protection program/project supported a number of strategic goals (e.g.,
Clean Air and Global Climate Change, Clean and Safe Water) and their
supporting strategic objectives (e.g., Healthier Outdoor Air, Protect
Human Health). The Healthier Outdoor Air strategic objective, for example,
only included the portion of the program/projects associated with that
objective. As noted below, EPA showed its total budget request by
program/project in the back of the justification.
While restructuring its congressional budget justification based on
strategic goals and objectives, EPA took steps to include additional
information to assist in congressional decision making. EPA officials and
staff told us that the focus of congressional interest and oversight
remained at the program/project level. In response to congressional
concerns that its fiscal year 1999 budget justification lacked program
information, EPA included a list of "key programs" in its fiscal year 2000
justification. According to EPA officials, the list covered approximately
30 percent of EPA's programs at first but was later expanded to cover
EPA's entire budget request. In its fiscal year 2005 congressional budget
justification, EPA replaced "key programs" with "program/projects," which
EPA officials said were a refinement because they were created using a
more formal process. Program/projects covered both programmatic (e.g.,
Geographic Program: Chesapeake Bay) and central administrative functions
(e.g., Facilities Infrastructure and Operations). EPA included a table
providing a complete list of program/projects, the appropriations accounts
they were funded through, and the resource request in the back of the
congressional budget justification.
EPA's congressional budget justification also included an
"Enabling/Support Programs" appendix providing detailed information on
these support programs, which mainly include central administrative
functions such as Facilities Infrastructure and Operations, IT/Data
Management, and Acquisition Management. This appendix was organized
Agency Views on Implications of Budget Restructuring for Management and
Oversight
by office (e.g., Office of Environmental Information, Office of
Administration and Resources Management) and included each
enabling/support program's resource request and performance information.
EPA officials described several benefits or potential benefits of the
appropriations account and congressional budget justification changes and
noted some limitations. EPA central office budget staff and program
managers also emphasized the importance of the agency's efforts to improve
its financial management system for its performance management efforts.
EPA officials viewed the changes within the appropriations accounts and
congressional budget justification as enhancing the performance
perspective initiated under GPRA. EPA officials said that the new
structure better links budget resources to EPA's strategic plan and
highlights the program/project funding levels associated with achieving
goals and objectives. According to EPA officials and OMB staff, the
current structure focuses on the achievement of goals and objectives
rather than focusing on individual programs as the pre-fiscal year 1999
budget did. Specifically, because managers now are required to justify
their budgets in terms of the agency's strategic direction, some credited
the changes with increasing understanding of and attention given to the
agency's strategic and performance management framework. This new
approach, which requires budget requests to be aligned to strategic goals
and objectives, was credited by EPA officials with providing greater
incentives for officials and program managers to understand the agency's
strategic framework and explain how particular program/projects fit within
that framework. Some staff credited the budget changes with leading to
better integration of program/projects that support common goals and
objectives. EPA officials also noted that these efforts have supported
greater integration of and collaboration among planning and budget staff.
Although central administrative resources were allocated to strategic
goals and objectives, EPA officials noted that increasing management
flexibility to make resource trade-offs among central administrative
resources or between central administrative and program resources was not
an objective of budget restructuring. For the most part, staff we spoke
with said that sufficient flexibility over resources to manage programs
already existed. An EPA official explained that their intention included
ensuring that the new structure provided managers the ability to implement
their programs with at least the same level of flexibility as in the old
structure. EPA officials said administrative resources were allocated to
strategic goals and objectives to provide a better picture of the
resources associated with the achievement of those goals and objectives
rather than to change the management of those resources.
EPA officials said that budget restructuring helped focus budget decisions
and resource management at the strategic objective level. EPA officials
and OMB staff explained that changing EPA's reprogramming guidance from
allowing funding shifts within specific program elements to allowing
funding shifts within broader strategic objectives potentially provides
more flexibility to make trade-offs among program/projects to achieve
strategic objectives. Along these lines, officials from one program office
explained that under the old structure funding was tied to a number of
program elements. Under the current structure, EPA officials said that
those program elements have been changed to program/projects that support
strategic objectives. Because there are fewer strategic objectives than
program elements, this change potentially provides managers with greater
flexibility than previously available to make trade-offs within that
objective. EPA officials noted that although increased flexibility was not
a primary objective of the reforms, increased flexibility would be viewed
as positive.
While EPA's budget changes were described as supporting EPA's efforts to
manage based on strategic goals and objectives and could potentially
provide more flexibility to make resource trade-offs among programs, EPA
officials also noted some limitations. First, the various program/projects
that support a particular strategic objective are funded from different
appropriations accounts, and EPA does not have authority to transfer
resources between appropriations accounts. However, as discussed
previously, EPA central office budget officials and program managers we
spoke with generally did not view the appropriations account structure as
an obstacle to management or as a barrier to incorporating a performance
perspective into the budget. Secondly, EPA officials and OMB staff noted
that much of Congress's focus remains on programs rather than on strategic
goals and objectives. For example, appropriations committee report
language for EPA specifies funding levels by program. EPA officials noted
that they incorporate these congressional directives with respect to
program funding into the operating plan, which may restrict the ability to
make resources trade-offs among programs.
Future Direction
Appendix IV Environmental Protection Agency
Finally, some EPA central office budget officials and program managers
emphasized the importance of integrating the budget and financial
management and noted the agency's efforts to improve its financial
management system.11 According to EPA officials, the agency has been
implementing a new integrated accounting and budget formulation system to
increase cost information. EPA officials noted that EPA's Integrated
Financial Management System (IFMS)12 tracks EPA's budget to various levels
including strategic goals, objectives, program/projects, and activities.
Both EPA officials and program managers noted the improvements to the
financial management system as useful to its budget restructuring efforts
as well as its broader efforts to improve performance management.
In response to congressional direction, EPA has significantly restructured
its congressional budget justification for fiscal year 2006 to organize by
appropriations account and program, rather than strategic goal and
objective. EPA continues to provide information on strategic goals and
objectives in the budget justification, but its handled more as a
supplement. EPA plans to continue to make necessary adjustments every 3
years to reflect revised Strategic Plans required under GPRA and to
improve cost and performance information.
11 EPA received a "green light" for financial performance on the Executive
Branch Management Scorecard for the fiscal year 2005 budget. According to
OMB, EPA demonstrated the use of financial and performance information for
day-to-day decision making.
12 The new IFMS structure includes a Program Results Code organized by
goal, objective, National Program Manager, program/project, and activity.
Activities describe how EPA conducts its work.
Appendix V
National Aeronautics and Space Administration
Background
The National Aeronautics and Space Administration (NASA) restructured its
budget to better align budget resources to programs and performance in the
budget. The budget structure changes are intended to improve internal
management and provide a better understanding of what it takes to do
NASA's work. NASA officials said that these changes were part of a broader
"Full Cost Initiative" and provide not only information but also
incentives to make decisions on the most efficient use of resources. This
has been a long-term process-NASA began putting the processes and tools in
place in fiscal year 1995. NASA incrementally changed its appropriations
account structure and congressional budget justification to support
implementation of "full cost" practices and to better reflect the
relationship of its budget to the Strategic Plan. Currently, NASA requests
budget authority for the "full cost" of its programs and uses different
methods to allocate different types of resources to its programs. While
NASA officials anticipate that budget restructuring will support
results-oriented management, some limitations and concerns were raised.
NASA is the nation's leading organization for research and development in
aeronautics and space. NASA describes its mission as to understand and
protect our home planet; explore the universe and search for life; and to
inspire the next generation of explorers "as only NASA can."1 This mission
is carried out by a workforce of federal employees (about 18,900 full time
equivalents) and contract employees (over 100,000) in NASA's centers and
other facilities across the country. NASA's budget has remained relatively
constant in real terms over the last decade; its fiscal year 2005 budget
request was for about $16 billion in discretionary funding.
When preparing the fiscal year 2005 budget, NASA was organized around
seven Strategic Enterprises, or main programmatic units: (1) Space
Science, (2) Earth Science, (3) Biological and Physical Research,
(4) Aeronautics, (5) Education, 6) Space Flight, and (7) Exploration
Systems.2 Enterprises were composed of one or more themes, or groups of
programs that could be attributed to related strategic goals. For example,
the Space Science Enterprise included Solar System Exploration, Mars
Exploration, and other themes. NASA had 18 themes, which were used as
1 National Aeronautics and Space Administration 2003 Strategic Plan, p.2 .
2 Exploration Systems was created in fiscal year 2005 to better reflect
the new vision for space exploration.
Page 165 GAO-05-117SP Performance Budgeting Appendix V National
Aeronautics and Space Administration
the basis for the agency's budget planning, management, and performance
reporting. Within a theme there were multiple theme elements, or programs,
that work together to achieve strategic goals. For example, the Mars
Exploration Theme (within the Space Science Enterprise) included the Mars
Global Surveyor, the 2003 Mars Exploration Rovers, and 2005 Mars
Reconnaissance Orbiter, which all supported NASA's strategic goal to
explore the solar system and universe beyond. In June 2004 (following the
fiscal year 2005 budget submission), NASA fundamentally restructured its
enterprises into Mission Directorates to position the organization to
better implement the vision set forth in A Renewed Spirit of Discovery,
The President's Vision for U.S. Space Exploration.3 NASA's fiscal year
2006 congressional budget justification reflected its new organizational
framework.
The relationship between NASA's organizational framework and its strategic
plan was complex. NASA had 10 strategic goals-7 science- and
research-related strategic goals and 3 enabling goals. Most strategic
goals were supported by multiple themes and themes provide primary or
contributing support to multiple strategic goals. Figure 16 shows the
relationship between NASA's strategic and organizational framework using
themes within the Space Science and Space Flight Enterprises. The complex
relationship may raise challenges for agency efforts to better align
resources with performance.
3 National Aeronautics and Space Administration, The Vision for Space
Exploration (February 2004).
Page 166 GAO-05-117SP Performance Budgeting
Appendix V National Aeronautics and Space Administration
Source: NASA's fiscal year 2004 congressional budget justification.
Objectives and Implementation Time Line
According to NASA officials, restructuring the budget to better align
budget resources with programs and performance is intended to improve
internal management and provide a better understanding of what it takes to
do NASA's work. NASA's budget restructuring efforts were part of the
broader "Full Cost Initiative," which involves changes to accounting,
budgeting, and management. NASA officials emphasized that the pieces all
fit together and support one another. The accounting and budgeting
portions support the management decision-making process by providing not
only better information, but also incentives to make decisions on the most
efficient use
Appendix V National Aeronautics and Space Administration
of resources. According to NASA officials, accounting changes alone would
not change managers' behavior. NASA also needs to budget and manage under
"full cost" to realize the anticipated benefits of more efficient resource
use. Under "full cost" budgeting, project managers are both expected to
continue to control direct costs and have greater control or influence
over indirect costs, such as service pools and administrative costs.
Lastly, by tying resources to performance, this initiative is intended to
provide internal and external parties with information about how programs
and resources are tied to NASA's mission and strategic plan.
NASA officials highlighted several limitations to the previous
appropriations account structure and congressional budget justification.
Specifically, NASA officials said the previous appropriations account
structure and congressional budget justification did not align resources
with its strategic plan and also limited program managers' accountability
and flexibility to make resource trade-offs to use resources more
efficiently. For example, NASA officials said that prior to changing its
budget justification it was difficult to show how some activities related
to its strategic plan. They also said that because mission support
resources were requested and funded in a separate appropriations account
than its programs and projects, the resources requested may not have
reflected the amount needed by NASA's programs and projects. In addition,
since mission support resources were not included in program managers'
budgets under the previous budget structure, program managers lacked
accountability over the resources used to achieve performance and had
limited ability to make resource trade-offs to use resources more
efficiently. Specifically, whereas project managers had considerable
control over contractor-supplied hardware and labor prior to budget
restructuring, they had less control over the number and type of civil
service personnel assigned to their projects and no control over the cost
of the assigned personnel and other support costs. As a result, civil
servants and other support costs appeared "free" to program managers and
they had less incentive to use those resources efficiently.
Budget restructuring, including NASA's efforts to better capture the "full
cost" of its programs in the budget, has been a long-term process at NASA.
NASA began putting the processes and tools in place in fiscal year 1995.
(See figure 17.)
Appendix V National Aeronautics and Space Administration
Figure 17: NASA's Implementation Time Line
FY1995 FY1996 FY1997 FY1998 FY1999 FY2000 FY2001 FY2002 FY2003 FY2004
Developed Created Submitted Implemented
"full standard FY2002 Core Financial
cost" cost budget to Module of the
concept definitionsa Congress Integrated
and with first Financial
approach proposed Management
account Program
structure intended to
change support
related to implementation
"full cost" of the "full
effort; cost"
Congress initiative
appropriated
under
proposed
structure
Submitted
first budget
in which
programs
request budget
authority for
the "full
cost" of
programs;
Congress
appropriated
under proposed
structure
Began
incorporating
Annual
Performance
Plan into
budget
justification
and linked all
programs to
the strategic
plan in the
budget
justification
Source: GAO analysis.
aNASA's Full Cost Initiative Agency-wide Implementation Guide (February
1999).
NASA implemented the Core Financial Module of the Integrated Financial
Management Program (IFMP) in fiscal year 2003 with the objective of
standardizing cost components across the agency. NASA said the integrated
financial management system was necessary to support implementation of
"full cost" practices and to submit its first "full cost" budget, which it
did in fiscal year 2004.
Despite the progress that has been made, the initiative remains relatively
new. For example, the "full cost" allocations for formulation of the
fiscal year 2004 budget was primarily a headquarters exercise and the
fiscal year
Appendix V National Aeronautics and Space Administration
Summary of NASA's Budget Restructuring Approach
2005 budget was the first budget program managers formulated in "full
cost." As a result, according to NASA officials, program managers have
only 1 year's experience with budgeting and managing in "full cost," and
the agency has not yet achieved the complete benefits of "full cost"
management.
Beginning with the fiscal year 2002 budget, NASA incrementally changed its
appropriations account structure and congressional budget justification to
support implementation of "full cost" practices and to better reflect the
relationship of its program budgets to the agency's strategic plan. The
organizational framework of NASA's congressional budget justification
followed its appropriations account structure and provided budget
information by enterprises, themes and programs. Changes to its
appropriations account structure and congressional budget justification
were accompanied by changes to transfer authority and proposed changes to
reprogramming guidelines. The extent of the linkage between resources and
performance has progressed over time and now NASA links budget resources
to its programs and projects within themes and enterprises. NASA uses
different methods to allocate different types of resources.
NASA's Appropriations Account Structure Changes Began in Fiscal Year 2002
The first step in NASA's incremental changes to its appropriations account
structure was made in the fiscal year 2002 budget. That year, NASA
proposed to eliminate its mission support appropriations account and
Congress accepted the account structure change. (See figure 18.) NASA
spread the budget resources for research, program management, and
Construction of Facilities (CoF) to NASA's mission-related accounts-
(1) Human Space Flight and (2) Science, Aeronautics, and Technology. No
major changes were proposed or made to the appropriations account
structure for fiscal year 2003.
Appendix V National Aeronautics and Space Administration
Figure 18: NASA's Appropriations Account Structure Incrementally Changed
between Fiscal Years 2001 and 2005 to Reflect Organizational Framework
Fiscal year Fiscal year Fiscal year Fiscal year Fiscal year
2001 2002 2003 2004 2005
Account Mission
Support
o Safety,
mission
assurance &
engineering
and advance
concepts
o Research
and program
management
o
Construction
of facilities
o Space
communication
services
Account Human Space Human Space Human Space
Flight Flight Flight
o Space o Space o Space
station station station
o Payload o Payload o Payload and
and ELV and ELV ELV support
support support
o o o Investments
Investments Investments and support
and support and support
o Space o Space o Space
shuttle shuttle shuttle
o Payload o Space o Safety,
and operations mission
utilization assurance &
operations o Safety, engineering
mission
assurance &
engineering o Space
communications
and
data systems
Science, Science, Science,
Account Aeronautics Aeronautics Aeronautics
and and and Technology
Technology Technology
o Space o Space o Space
Program science o science o science o
activities Earth science Earth science Earth science
o Life and o Biological o Biological &
microgravity & physical physical
science research (R) research (R)
o Aerospace o Aerospace o Aerospace
technology technology technology
o Space o Space o Space
operations operations operations
o Academic o Academic o Academic
programs programs programs
o Mission o Mission o Mission
communication communication communication
services services services
Space Flight Exploration
Account Capabilities Capabilities
(R)
Program o Space o Space
flight flight
activities o o
Crosscutting Exploration
technologya systems
Science, Science,
Account Aeronautics, Aeronautics,
and and
Exploration Exploration
o Space o Space
science o science o
Program Earth Earth
activities science science
o Biological o Biological
& physical & physical
research research
o o
Aeronautics Aeronautics
o Education o Education
Source: GAO.
(R)= Renamed.
a Although listed as a separate program activity like enterprises,
Crosscutting Technology is a component of the Aeronautics Enterprise.
Note: Accounts funding the Office of Inspector General and Trust Funds
excluded because those resources were not allocated to NASA's programs or
projects.
Page 171 GAO-05-117SP Performance Budgeting
Appendix V National Aeronautics and Space Administration
Changes to the Budget Justification Followed Account Structure Organizing
Framework
In fiscal year 2004, NASA further refined its appropriations account
structure and program activity listing within the accounts. NASA created
two mission-related appropriations accounts-(1) Science, Aeronautics and
Exploration (SAE) and (2) Space Flight Capabilities. Within these
appropriations accounts, NASA also changed the program activity listing in
the program and financing (P&F) schedule of the President's Budget
Appendix to better align with NASA's enterprises. For example, between the
fiscal years 2002 and 2004 budgets the Space Station and Space Shuttle
program activity lines were combined to form the Space Flight program
activity line (see figure 18).
For the fiscal year 2005 budget, NASA's basic structure remained the same;
however a new program activity line, Explorations Systems, was added to
the Exploration Capabilities (formerly called Space Flight Capabilities)
account. The new program activity line reflected NASA's newly created
enterprise that was added to better align with the new vision for space
exploration.
NASA also changed its congressional budget justification and more fully
incorporated the annual performance plan into its budget justification
beginning with the fiscal year 2004 budget. In the congressional budget
justification, NASA provided budgetary information by appropriations
account, enterprise, themes, and then program and projects that compose
them. For example, in the fiscal year 2005 budget justification, within
the chapter for the Exploration Capabilities appropriations account, there
was discussion and presentation of budgetary information for the Space
Flight Enterprise, followed by the International Space Station and Space
Shuttle Program Themes. Within themes, the supporting programs and the
associated budget resources were shown. Within the Space Shuttle Theme,
NASA provided the budget resources associated with Shuttle programs such
as Ground Operations, Flight Operations, Flight Hardware, and the Service
Life Extension Program.
NASA linked its themes to its strategic plan within the congressional
budget justification. Each theme was linked to one or more of NASA's 10
strategic goals. Themes, and the programs and projects that support them,
were also linked to NASA's strategic objectives and annual performance
goals. While resources could be linked to strategic goals, objectives, and
performance goals through the themes, NASA did not show the "full cost" of
strategic goals, objectives, and performance goals in the budget
justification. For example, in the fiscal year 2004 congressional budget
Appendix V National Aeronautics and Space Administration
Some Previously Reported Information Less Transparent or No Longer
Included
justification, NASA showed the Space Shuttle Program Theme supported some
mission-related goals, but it primarily contributed to the enabling
strategic goal "to ensure the provision of space access and improve it by
increasing safety, reliability, and affordability." This goal was also
supported by other themes in the Space Flight and Aeronautics Enterprises.
The dollar contribution of the Space Shuttle Theme was not distinguishable
and the "full cost" of activities supporting that goal was not provided.
As the focus on programs or how programs fit together to support the
agency's strategic and performance framework increased in NASA's budget
structure, information on individual program elements or items of expense
became less apparent. For example, in the fiscal year 2003 appropriations
account structure, the Space Station and the Space Shuttle program were
two program activities listed in the P&F schedule of the Human Space
Flight account. Beginning with the fiscal year 2004 budget, when NASA
changed its program activity listing to align with its enterprises, the
budget resources associated with the Space Station and the Space Shuttle
Program Themes (and the programs or projects that compose them) were
combined into one program activity line labeled "Space Flight" within the
Space Flight Capabilities account. As a result, the resources requested
for the Space Station and Space Shuttle programs were no longer
transparent in the program activity listing of the President's Budget
Appendix for NASA.
Some resources were also less transparent in the fiscal years 2004 and
2005 congressional budget justifications. Specifically, there was less
information on program elements and direct and indirect cost components
were not clearly delineated in the fiscal years 2004 and 2005 budget
justifications. In the fiscal year 2003 congressional budget
justification, one could see the distribution of Space Shuttle resources
among various programs, such as Flight Hardware and Program Integration.
Beneath these programs, NASA provided information on program elements. For
example, for Flight Hardware, NASA showed the resources requested for
external tank production, main engine production, and main engine test
support. These program elements and the associated budget resources were
not visible in the fiscal years 2004 and 2005 budget justifications.
Direct and indirect cost components were also less transparent in the
fiscal years 2004 and 2005 budget justifications. Under NASA's old
congressional budget justification format, program budgets included only
direct procurement costs and indirect costs were budgeted separately.
While decision makers and other budget users could not see all the
resources
Appendix V National Aeronautics and Space Administration
Changes to Transfer and Reprogramming Authority Accompanied Budget
Structure Changes
associated with operating the programs prior to the fiscal year 2004
budget, they could clearly distinguish between direct and indirect
resources. Under the restructured congressional budget justification, the
direct and indirect cost components associated with NASA's programs were
combined and not clearly delineated.
Supporting information on NASA's institutional resource request was
provided in supplemental tables in NASA's fiscal years 2004 and 2005
congressional budget justifications. These tables provided information on
general and administrative resources by center (i.e., Center G&A); direct
travel and personnel in each center; full-time equivalents (FTEs) by
center; and headquarter and agencywide general and administrative
resources (i.e., Corporate G&A). They also provided information on CoF
projects by center.
NASA's budget structure changes were accompanied by new transfer
authority. Beginning with fiscal year 2002, NASA's mission support account
was eliminated and the resources were allocated to its two mission
appropriations accounts. Since then, NASA has been funded mainly by two
appropriations accounts and has had transfer authority for administrative
services, including federal salaries and benefits, training, travel, and
facilities funding between these appropriations accounts. The legislation
said this transfer authority was granted "to ensure the safe, timely, and
successful accomplishment of Administration missions."4 NASA officials
said this additional flexibility was needed because there is an inherent
difficultly in estimating program resources because staff divide their
time among multiple programs.
In fiscal year 2004, NASA also requested that congressional appropriations
committees change its reprogramming guidelines. Currently, NASA's
reprogramming guidelines allow managers to shift funds among and within
programs or other line items presented in the congressional budget
justification up to certain dollar thresholds specified by appropriations
4 National Aeronautics and Space Act of 1958 (Pub. Law 85-568) as amended
by Pub. Law 106-377, 114 Stat 1441, 1441A-57 (2000).
Page 174 GAO-05-117SP Performance Budgeting
Appendix V National Aeronautics and Space Administration
NASA Requested Budget Authority for the "Full Cost" of Programs
committees without first notifying them.5 NASA requested that it be
allowed to shift funds within and among its 18 themes (rather than
programs) without the requirement to notify Congress first. NASA also
asked that they increase the dollar threshold for such reprogrammings to
$10 million. NASA said this change would provide theme managers additional
flexibility during budget execution to make trade-offs between programs
and projects within a theme that support a common goal. They saw it as is
important to not only properly align resources with performance but also
to allow for the most efficient use of resources within a theme.
Currently, if additional funds are needed throughout the year, program
managers must shift resources within that program. Under the proposed
reprogramming guidelines, additional costs that arise throughout the year
could be offset by reducing another program's costs within the same theme.
Congress, however, did not change NASA's reprogramming guidelines for
fiscal years 2004 or 2005 and they continue to be generally tied to
programs.6
The extent of NASA's resource linkage has progressed over time. Beginning
in fiscal year 2002, NASA allocated mission support resources to its
program appropriations accounts. In the fiscal years 2004 and 2005
budgets, NASA allocated all budget resources (except the Inspector
General's office) to the more detailed program/project level and combined
program resources to show the budget resources associated with themes and
enterprises. Program budgets include direct program costs, including
procurement and personnel as well as a share of general and administrative
costs from NASA's centers (Center G&A) and from NASA headquarters
(Corporate G&A). Resources for the use of service pools, or centralized
infrastructure, such as wind tunnel services and information technology,
are also allocated to program budgets. Table 18 describes these costs
allocated to and requested by program budgets in more detail.
5 For fiscal year 2004, the House Appropriations Committee allowed
reprogrammings between programs, activities, object classifications, and
elements up to $500,000 without notifying the committee. The Senate
Appropriations Committee allowed reprogrammings among programs,
activities, and elements only up to $250,000.
6 NASA officials said, however, that because reprogramming guidance is
essentially tied to any line item in the budget justification, aggregating
program elements and providing less detailed information in essence
changed the interpretation of the reprogramming guidance. The implications
of this change are discussed in more detail later in this appendix.
Appendix V National Aeronautics and Space Administration
Table 18: Cost Definitions and Examples
Cost type Definition Examples
Direct Direct costs that can be related o Purchased goods and services
or traced to a specific project at o Contracted support
the time costs are incurred. o Direct civil service
salaries/benefits/travel
Service pool Infrastructure capabilities o Facilities and related
services
costs supporting multiple program o Information technology
and projects at NASA centers o Science and Engineering
that can be linked to programs o Fabrication
and projects based on usage or o Test Services
consumption. o Wind Tunnel Service
Center G&A Indirect costs from NASA's o Center director and other
indirect
centers that are not related civil service
to salaries/benefits/travel
specific programs and o Center training and awards
projects.
o Security
o Grounds maintenance
o Library
o Human resources department
o Medical services
Corporate G&A NASA headquarter operating o NASA administrator and
immediate
costs and agencywide G&A staff
costs (costs of corporate o Enterprise level/management
G&A
function performed at NASA o Headquarters Operations
centers on behalf of the management
agency).
Source: NASA's fiscal year 2005 budget justification.
Allocation Methods Vary NASA uses different methods to distribute
different types of resources. Among Different Types of
Resources o Service Pool resources are funded by a specific program
based on usage. The rate for its use is determined by the operating cost
of the facility or function and the units of consumption.
o Center G&A are distributed to programs operating in each center based
on the number of direct and service pool FTEs and on-site contractors
that work on a program or project.
o Corporate G&A are distributed to programs based on the program's share
of NASA's total direct and indirect costs.
According to NASA officials, NASA's cost allocation methods have been, and
may continue to be, refined.
Appendix V National Aeronautics and Space Administration
Agency Views on Implications of Budget Restructuring for Management and
Oversight
NASA officials anticipate that budget restructuring to better align budget
resources with programs and performance will support results-oriented
management by helping managers identify and address underutilized assets
and by providing managers with information and incentives to recognize and
make resource trade-offs. However, because this initiative is still
relatively new, NASA officials said it is too early to see the full
benefits of its budget restructuring efforts. Concerns were raised that
the budget structure changes may, among other things, reduce flexibility
to respond to changing needs or adversely affect the balance between
maintaining institutional capacity and operational efficiency.
Budget Restructuring Credited with Increasing Information and Incentives
to Recognize and Make Resource Trade-offs; However, Trade-offs Would Be
Limited
NASA officials credited budget restructuring with providing managers the
information and incentives to recognize and make resource trade-offs.
Before budget restructuring, program managers' budgets only included
procurement dollars and not the cost of civil servant salaries or use of
central facilities. NASA officials said that, as a result, civil servants
and central facilities appeared "free" to program managers. Under NASA's
restructured "full cost" budget, all costs associated with a program are
included in program managers' budgets, and NASA officials said that they
view this change as making program managers more accountable for these
resources. As a result, managers are more likely to pay attention to these
costs and have greater incentives to use civil servants' time more
efficiently. In addition, given that programs are allocated a portion of
central administrative costs, NASA officials noted that program managers
are paying more attention to and questioning these costs, which in turn
increases pressure on headquarters and centers to reduce costs.
Changes to NASA's appropriations account structure and congressional
budget justification would facilitate resource trade-offs. As discussed
earlier, NASA's mission support account was eliminated and resources for
mission support are now funded through NASA's two mission-related
appropriations accounts. Under this new structure, managers can make
trade-offs between direct program and mission support resources. In
addition, changes to NASA's congressional budget justification have, in
effect, increased NASA's ability to move funds within appropriations
accounts during budget execution. For example, within the Flight Hardware
program in the fiscal year 2003 congressional budget justification,
resources were tied to program elements, such as external tank production,
main engine production, and main engine test support. These items and
their costs are not shown in the fiscal years 2004 and 2005
Appendix V National Aeronautics and Space Administration
Budget Structure Changes May Create New Resource Management Challenges
congressional budget justifications. According to NASA officials, because
reprogramming is essentially tied to any line item in the congressional
budget justification, aggregating programs and providing less detailed
information on program elements in the budget justification provides NASA
with more flexibility to make resource trade-offs among program elements.
As a result, managers have more flexibility to move resources among these
program elements during budget execution.
While NASA's restructuring changes provide some additional resource
trade-offs, internal management controls and reprogramming guidelines
limit other trade-offs. NASA officials said that flexibility is limited by
the fixed-cost nature of services and labor. In particular, resource
trade-offs among items of expense, such as general administration and
civil personnel salaries, are limited during budget execution. NASA
officials told us that during budget formulation, all resources within a
program (excluding center and corporate G&A) are interchangeable, but
during budget execution trade-offs among resources for civil servants and
other resources are limited because contract agreements are established
for some services and civil service regulations must be followed. Also,
while NASA restructured its budget to help manage at the more aggregated
theme level (e.g., Space Shuttle), its reprogramming unit remains tied to
its programs (e.g., Flight Hardware, Ground Operations). This limits the
resource trade-offs that can be made among programs within a theme. For
example, NASA cannot make resource trade-offs (above the reprogramming
threshold) between Flight Hardware and Ground Operations within the Space
Shuttle Theme without notifying Congress first.
At NASA, views differed about the potential implications of the budget
structure changes for managers' ability to respond to changing needs. Some
program managers expressed concerns that the changes could limit their
ability to respond to staffing uncertainties. Under NASA's previous budget
structure, program budgets were not charged for civil servants working on
their projects and staffing uncertainties were covered in center budgets.
A program needing additional staff would request them from the center,
which retained additional FTEs. Under the new budget structure, civil
servants and the associated budget authority are requested and funded
through program budgets. Some NASA program managers expressed concern that
they might not be able to deal with an unexpected increase in workload
because NASA program managers will have to come up with the money to pay
for the civil servants, which might limit the extent to which
Appendix V National Aeronautics and Space Administration
Allocation of Service Pool Costs to Programs Credited with Providing
Better Information and Incentives to Identify and Address Underutilized
Assets
they can shift budget resources among programs. Another program manager,
however, suggested that since control over civil servants has moved from
center managers to program managers, "full cost" budgeting would reduce
some "red tape" in dealing with sudden needs or emergencies and that as a
result, program managers could move FTEs more quickly.
An official stated that NASA addressed these concerns and issued a policy
statement describing how unexpected staffing needs would be met. If a
program needed additional FTEs, program managers could obtain additional
staff from other projects or from the center's "Workforce in Transition."
The costs for the program receiving the staff would increase, and the
program providing staff would have funds available to hire more staff or
could carry over its excess funding to the following year. If NASA
management determined cost increases were legitimate, the costs would be
funded most likely from center reserve funds.7 If they determined the
increased costs are not legitimate, they would not be funded and the
program would need to reconfigure its budget by negotiating resources with
other programs. In either case, funds would move in accordance with
current policies surrounding changes to operating plans or NASA management
practices.
According to NASA officials, aligning budget resources with programs or
projects provides the information and incentives to identify and address
underutilized assets. Prior to the changes, central administrative
facilities, such as service pools, were shown and budgeted for separately
from the programs that used them. Now these resources are allocated to
NASA's programs and included as part of program budgets based on use. NASA
officials credited this approach with making underused assets more visible
because if a service pool or other asset's costs were not covered by
programs, questions would be raised about whether that asset or capability
is needed. NASA officials also explained that when program managers are
responsible for paying service pool costs associated with their program,
program managers have an incentive to consider their use and whether lower
cost alternatives exist. As a result, NASA officials said "full cost"
7 According to NASA officials, centers have "investment accounts" that
fund nonprogram Construction of Facilities and research and development.
However, officials noted center managers face pressures to keep Center G&A
down in order to compete for programs to operate at their center.
Page 179 GAO-05-117SP Performance Budgeting
Appendix V National Aeronautics and Space Administration
Budget Restructuring Not Intended to and Will Not Address Some Key
Performance Issues
budgeting provides officials and program managers with a greater incentive
to improve the management of these institutional assets.
Some NASA program managers raised concern that the budget structure
changes might affect the balance between maintaining strategic or
institutional capacity and creating incentives for operational
efficiencies. Specifically, some expressed concerns that NASA's changes
created incentives that could over time erode the agency's commitment to
institutional assets such as central facilities and service pools. Under
the new structure, budget authority for institutional assets are allocated
to and requested by program budgets. The rate used to charge program
budgets is determined by the operating cost of the facility and the units
of consumption. As a result, a declining number of users can lead to
increasing service charges for others using centers or service pools. Some
speculated that this could in turn lead to a "death spiral" as increasing
user charges drive out other programs, resulting in even higher user
charges. Consequently, assets not adequately covered by user charges might
be eliminated even though they might be valuable to the institution as a
whole.
A NASA official told us, however, that NASA would remain committed to
assets considered by agency management to be important for achieving
NASA's mission even if they are underused. The costs of underused assets
determined to be of institutional value could be absorbed by the programs
using the asset, funded by general administration, which is allocated
across all program budgets, or by directing other work activities to the
asset. Further, the NASA official said "death spirals" are unlikely to
occur at centers in the short term for two reasons: (1) center directors
have some control over where program/projects do their work and (2)
program managers must execute the budget within the commitment made about
resources and results during budget formulation, including the use of
centers. However, the NASA official said, the "death spiral" phenomenon
may be more likely with some service pools, such as fabrication shops.
One objective of NASA's recent budget restructuring efforts is to provide
better information and incentives to help managers focus on efficiency and
effectiveness. However, budget restructuring alone does not necessarily
provide some cost and performance information cited by some NASA officials
and program managers as most useful in advancing results-oriented
management and addressing some key management challenges. NASA program
managers we spoke with said budget restructuring would not help reduce or
limit cost overruns, which has been a key performance
Appendix V National Aeronautics and Space Administration
issue.8 They said they need more detailed cost information on contract
cost components, including labor and materials, or at the task level to
monitor contractor performance. In contrast, the information provided by
budget restructuring-total program cost-is more aggregate than the data
needed to monitor and improve contract management. Others noted that
efforts, including developing improved performance measures and metrics,
have a much greater impact on results-oriented management than budget
restructuring.
While the accounting and budget aspects of the "full cost" initiative have
Future Direction
been implemented, the more difficult management aspect lies ahead. NASA
officials said it may take a few more years to see the full benefits of
the "full cost" initiative at NASA.
8 GAO has reported that NASA has had long-standing contracting issues in
part because it lacked accurate and reliable information on contract
spending. See Business Modernization: Improvements Needed in Management of
NASA's Integrated Financial Management Program, GAO-03-507 (Washington,
D.C.: Apr. 30, 2003).
Page 181 GAO-05-117SP Performance Budgeting
Appendix VI
GAO Contact and Staff Acknowledgments
Susan J. Irving, (202) 512-9142
GAO Contact
In addition to the person mentioned above, Mark Keenan, Elizabeth
Acknowledgments
McClarin, James Whitcomb, and Melissa Wolf made key contributions to this
report.
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